The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: tmoneyearlyretiree on January 19, 2016, 09:13:18 AM
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Former municipal bond trader here. I've been doing a lot of research on NJ pensions for my blog bc it occurred to me that the stock market has slumped the past few months, which makes the underfunding on the pension funds in NJ that much worse.
Basically, the current cash burn in the NJ teachers pension fund excluding investment income right now is about 3 billion USD. Their pension fund is about 23 billion, if we apply the infamous 4% rule, they get about 920 million a year in investment income. Benefits are increasing about 4.5% a year. The difference is what they take out of the pension principal.
So here's the rub. 2 billion net drain on the pension each year grows bc the smaller principal generates less investment income. I've run the numbers and they have about 9 years left before the teachers pension has $0. at that point, with benefits increasing at 4.5% a year, they'll have 5 billion USD in payments to make , but $0 from the pension fund to pay for it.
The total NJ budget is about 33 billion. Also, the teachers pension is only one third of the total underfunded pension assets. They'll get less revenue by raising taxes than the straight up increase, so i estimate NJ will need to increase taxes by 50% at that time. The Supreme Court in NJ has already ruled that benefits cannot be cut.
Any NJ residents out there worried about this at all? Has anyone heard anything about this terrible fiscal situation?
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Moody's published a study last fall about this very topic. Christie has an alternate plan but the teachers have to get on it, which requires a vote as I recall. The tax increase would be pretty minimal -- about $180/year for each household.
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Interesting blog post - commenting to follow
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NJ resident here and we already paying thru the nose for school taxes.
I have my primary home and multi family investment property combined paying $20000 in school taxes alone.
Add municipal taxes and everything else $26000.
:( :(
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As the rating agencies have shown us in the past, they are not immune to being asleep at the wheel. That alternative plan Christie has is just something to get him out of office without having to deal with the enormity of this problem. The math is all there on my site if ppl care to check.
@bacchi No minimal tax increase can fix this problem. They are assuming 7.9% investment return each year, with 30% fixed income. That means their equities have to return about 11.4% a year. That's virtually impossible. If you use a realistic 5.5% investment return, thats how you get them running out in 9 years. Moody's reports dont talk about how ridiculous their assumptions are in the pension plan. There were 86,017 retired teachers as of June 30, 2014 receiving a NJ pension. They cannot be moved off of the pension plan as per the Supreme Court ruling this June.
Also, there are 8,167 more teachers in NJ over the age of 60 in 2014 compared to 2002 that have earned full pension benefits that will be retiring in the next few years. These folks cannot be moved to any DC style plan. There are 2432 fewer teachers under the age of 30 in NJ in 2014 compared to 2002. The folks they would be moving to the DC style plan haven't earned any benefits yet. That's not the problem. The problem is they're spending billions in current benefit payments to current retirees that they in no small question owe. Eliminating the COLA generosity only slowed benefit growth from double digits to about 4-5% annualized bc of the greater numbers of retired teachers. I read each of the annual pension reports from 2002 to 2014 (thanks to being "early retired" I have the time).
NJ taxes are already sky high as @AM43 pointed out. I question whether or not the state will walk away from their appropriation bonds that they're not required legally to pay. This is a looming disaster whose clock just got sped up by a 10% drop in their pension assets. Also, check out http://www.nj.gov/treasury/doinvest/directorsreports.shtml. They're almost three months late on their monthly investment report. Why?
Also look for their Fiscal 2015 annual pension report (for year ended June 30, 2015). They haven't published one yet. They're expecting it in April. Illinois by comparison already has theirs out. I guarantee Moody's didn't go and look in each individual pension and actuarial reports, I've read their writeups.
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Why don't they just go tax-free ?
Then the only people living in New Jersey will be millionaires flocking from around the world (and ex-public workers on pensions)
I understand it is called the Garden State so I'm guessing it's something like Monaco, is a marina and a Grand Prix?
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Why don't they just go tax-free ?
Then the only people living in New Jersey will be millionaires flocking from around the world (and ex-public workers on pensions)
I understand it is called the Garden State so I'm guessing it's something like Monaco, is a marina and a Grand Prix?
Haha thats a funny point. I wonder how many of those retired NJ tecahers aren't even living in the state, providing benefits back to the state economy. A lot are probably in Florida I'd imagine.
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Haha thats a funny point. I wonder how many of those retired NJ tecahers aren't even living in the state, providing benefits back to the state economy. A lot are probably in Florida I'd imagine.
My entire family is from New York. None retired there, all left NY either at retirement or some time before retiring to move south and not deal with snow anymore. Based on the declining population of New York state, it seems likely this might play a role.
As for government pensions, I think it's criminally unfair to do it the way they do it. Basically what the government does is say "Hey, all of us only want to put in $ dollars while we work, but we want to collect $$$ dollars after we retire. This won't work, so let's just make somebody else pay for our retirement?" That's wrong. That's not the MMM way at ALL, where you are responsible to pay for your own retirement, not force somebody else to pay for you.
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Yeah based on what the NJ teachers contribute today (7.5% of pay to pension) , if you assume an employer contribution of 5% of pay to a 401k style plan, then you'd need a 12% annualized return to get what they're getting.
However, since the avg pension is about $44,000, it's not like any of these retirees are rich off their pensions. If they get cut 50% , a lot of people will suffer severely. And the avg teacher has no control over govt policy, so it's not their fault they were promised a series of generous benefits. It's the states fault and by extension the NJ voter.
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Just look at what happened to Detroit after they came out of bankruptcy. Basically the same thing will happen, taxes will go up and pensions will be cut. Nothing to see here, move along.
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Most of the problems I had with your post here were addressed in your longer blog post. However, I have a few lingering issues.
First, although you talk about the contribution rate for teachers, I don't see you discuss the number of dollars they actually contribute to the pension fund. Did I miss this? It would be a significant input to the cash flow equation.
Second, you have a few problems when you calculate that the teachers are getting a good deal based on your comparison to a hypothetical 401k. First, it looks like you only adjust the salary for inflation, not for real increases. Second, you use a 5% state contribution, which is significantly below typical state contributions for 401k style plans (often ~10%). Third, and as a partial explanation for the second point, state employees are typically underpaid relative to the private sector, which is often partially ameliorated by better benefits packages (if you work your whole career for one state). This last point is confused a bit by the fact that the overwhelming majority of teachers are public employees, making a true comparison difficult since public schools make the market.
Third, when you calculate what the imputed withdrawal value of a hypothetical 401k for a teacher would be, you use the 4% rule. I understand why you did this, as an individual needs the safety net provided by the 4% rule, and the 4% rule protects the retirement income of an individual in >95% of cases. But when you get a sufficiently large group of people sharing retirement assets, you don't need 95% safety - you only need ~50th percentile (since half of the retirees will die before average, and can subsidize the longevity advantaged). This significantly increases what a "safe withdrawal rate" looks like. Alternatively, you could say that in the 401k case, heirs will inherit the entire 401k balance (this is on average true using the 4% rule), while heirs of someone receiving a pension are left nothing unless underaged.
Fourth, you mention several times that courts have already ruled that pensions can't be cut. Why do you think this would change in the future? Especially since the state is not meeting its funding requirement, and isn't even coming close.
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As for government pensions, I think it's criminally unfair to do it the way they do it. Basically what the government does is say "Hey, all of us only want to put in $ dollars while we work, but we want to collect $$$ dollars after we retire. This won't work, so let's just make somebody else pay for our retirement?" That's wrong. That's not the MMM way at ALL, where you are responsible to pay for your own retirement, not force somebody else to pay for you.
I assume you find 401k contributions by all employers to be similarly objectionable? And private pensions as well? After all, in all those cases you're getting someone else to pay for your retirement just as much as government pensions.
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Most of the problems I had with your post here were addressed in your longer blog post. However, I have a few lingering issues.
First, although you talk about the contribution rate for teachers, I don't see you discuss the number of dollars they actually contribute to the pension fund. Did I miss this? It would be a significant input to the cash flow equation.
Second, you have a few problems when you calculate that the teachers are getting a good deal based on your comparison to a hypothetical 401k. First, it looks like you only adjust the salary for inflation, not for real increases. Second, you use a 5% state contribution, which is significantly below typical state contributions for 401k style plans (often ~10%). Third, and as a partial explanation for the second point, state employees are typically underpaid relative to the private sector, which is often partially ameliorated by better benefits packages (if you work your whole career for one state). This last point is confused a bit by the fact that the overwhelming majority of teachers are public employees, making a true comparison difficult since public schools make the market.
Third, when you calculate what the imputed withdrawal value of a hypothetical 401k for a teacher would be, you use the 4% rule. I understand why you did this, as an individual needs the safety net provided by the 4% rule, and the 4% rule protects the retirement income of an individual in >95% of cases. But when you get a sufficiently large group of people sharing retirement assets, you don't need 95% safety - you only need ~50th percentile (since half of the retirees will die before average, and can subsidize the longevity advantaged). This significantly increases what a "safe withdrawal rate" looks like. Alternatively, you could say that in the 401k case, heirs will inherit the entire 401k balance (this is on average true using the 4% rule), while heirs of someone receiving a pension are left nothing unless underaged.
Fourth, you mention several times that courts have already ruled that pensions can't be cut. Why do you think this would change in the future? Especially since the state is not meeting its funding requirement, and isn't even coming close.
1. The teacher contribution would be if it wasn't already included. However it's already included in the ~$1.1 billion contribution number in 2014. $716 million came from teacher contributions about about $420 million came from the state. That's the why the problem is so bad. The pension reform law in 2011 used the increased teacher contributions to offset state contributions instead of shore up the fund like it was supposed to.
2. That's true that the employer contribution in a 401k style plan would probably be higher than 5%. If you took the current employer contribution to the pension, it would be roughly a 4% of pay contribution ($420 million on slightly more than $10 billion of active teacher payroll). To even implement an attractive 401k plan, the state would need to come up with billions in extra revenue.
3. Good point on the 4% rule. However the 4% rule was calculated during a period with much higher interest rates, thus providing a better return for a balanced portfolio of stocks and bonds. With 10 year treasuries at 2%, I think the 4% rule is still reasonable but not overly conservative.
4. The NJ Supreme Court has implied through its ruling in Burgos v. State of New Jersey that the benefits earned by public workers are a contractual obligation. They might not be entitled to things like cost of living increases, but the original baseline of what they're owed seems like it must remain intact. If they could make a cut, it would be need to be so large that lawsuits would be certain to tie it up until a clear decision was made.
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Just look at what happened to Detroit after they came out of bankruptcy. Basically the same thing will happen, taxes will go up and pensions will be cut. Nothing to see here, move along.
The market is not expecting this. New Jersey bonds are trading above 100 cents on the dollar, and large NJ mutual funds are still solvent and not imposing withdrawal restrictions. That's why its news.
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Most of the problems I had with your post here were addressed in your longer blog post. However, I have a few lingering issues.
First, although you talk about the contribution rate for teachers, I don't see you discuss the number of dollars they actually contribute to the pension fund. Did I miss this? It would be a significant input to the cash flow equation.
Second, you have a few problems when you calculate that the teachers are getting a good deal based on your comparison to a hypothetical 401k. First, it looks like you only adjust the salary for inflation, not for real increases. Second, you use a 5% state contribution, which is significantly below typical state contributions for 401k style plans (often ~10%). Third, and as a partial explanation for the second point, state employees are typically underpaid relative to the private sector, which is often partially ameliorated by better benefits packages (if you work your whole career for one state). This last point is confused a bit by the fact that the overwhelming majority of teachers are public employees, making a true comparison difficult since public schools make the market.
Third, when you calculate what the imputed withdrawal value of a hypothetical 401k for a teacher would be, you use the 4% rule. I understand why you did this, as an individual needs the safety net provided by the 4% rule, and the 4% rule protects the retirement income of an individual in >95% of cases. But when you get a sufficiently large group of people sharing retirement assets, you don't need 95% safety - you only need ~50th percentile (since half of the retirees will die before average, and can subsidize the longevity advantaged). This significantly increases what a "safe withdrawal rate" looks like. Alternatively, you could say that in the 401k case, heirs will inherit the entire 401k balance (this is on average true using the 4% rule), while heirs of someone receiving a pension are left nothing unless underaged.
Fourth, you mention several times that courts have already ruled that pensions can't be cut. Why do you think this would change in the future? Especially since the state is not meeting its funding requirement, and isn't even coming close.
1. The teacher contribution would be if it wasn't already included. However it's already included in the ~$1.1 billion contribution number in 2014. $716 million came from teacher contributions about about $420 million came from the state. That's the why the problem is so bad. The pension reform law in 2011 used the increased teacher contributions to offset state contributions instead of shore up the fund like it was supposed to.
Ah, okay, I didn't do the math to compare total contributions and the state contribution for 2014. Thanks.
2. That's true that the employer contribution in a 401k style plan would probably be higher than 5%. If you took the current employer contribution to the pension, it would be roughly a 4% of pay contribution ($420 million on slightly more than $10 billion of active teacher payroll). To even implement an attractive 401k plan, the state would need to come up with billions in extra revenue.
The bolded part is very interesting. It also shows how much NJ failed in the past if their needed contributions now are, what, 20% of payroll? A well run pension program should be able to be funded with 4-5% employer contributions (http://www.massbudget.org/report_window.php?loc=Pension_3_11.html) if the employee is chipping in as much or more.
3. Good point on the 4% rule. However the 4% rule was calculated during a period with much higher interest rates, thus providing a better return for a balanced portfolio of stocks and bonds. With 10 year treasuries at 2%, I think the 4% rule is still reasonable but not overly conservative.
That's your opinion, and in my opinion not a very well supported one. In effect you're saying that the market and interest rate conditions now place us among the 5% most dangerous times to retire in US history.
4. The NJ Supreme Court has implied through its ruling in Burgos v. State of New Jersey that the benefits earned by public workers are a contractual obligation. They might not be entitled to things like cost of living increases, but the original baseline of what they're owed seems like it must remain intact. If they could make a cut, it would be need to be so large that lawsuits would be certain to tie it up until a clear decision was made.
Okay, if you're saying the state might renege on cost of living increases or something like that, I could see that happening. But the nominal dollar amount of a pension is clearly a contractual obligation as interpreted by the court, and so that won't be going away.
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Posting to follow
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7.5% contribution rate? AZ teachers pay 11.5%, with an equal match from the district or agency. So 23% contribution rate per future retiree. Pays to live in a financially responsible red state sometimes...
Figure average $40K for 30 years, that is ~$1.2M in principle. For roughly $48K per person SWR, assuming no accumulated interest. And people still talk about it being underfunded.
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Just look at what happened to Detroit after they came out of bankruptcy. Basically the same thing will happen, taxes will go up and pensions will be cut. Nothing to see here, move along.
The market is not expecting this. New Jersey bonds are trading above 100 cents on the dollar, and large NJ mutual funds are still solvent and not imposing withdrawal restrictions. That's why its news.
I agree it will be news, I was trying to be funny with my last sentence. But we all know how this is going to end.
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7.5% contribution rate? AZ teachers pay 11.5%, with an equal match from the district or agency. So 23% contribution rate per future retiree. Pays to live in a financially responsible red state sometimes...
Figure average $40K for 30 years, that is ~$1.2M in principle. For roughly $48K per person SWR, assuming no accumulated interest. And people still talk about it being underfunded.
Wow really? That's a massive contribution. The comment on the Massachusetts pension was a very intelligent one. NJ contributed $0 to the pension for three years, I think it was 2002, 2003, and 2004. In 2000, they reduced the teacher contribution to 3% of pay from 5% of pay.
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7.5% contribution rate? AZ teachers pay 11.5%, with an equal match from the district or agency. So 23% contribution rate per future retiree. Pays to live in a financially responsible red state sometimes...
Figure average $40K for 30 years, that is ~$1.2M in principle. For roughly $48K per person SWR, assuming no accumulated interest. And people still talk about it being underfunded.
Wow really? That's a massive contribution. The comment on the Massachusetts pension was a very intelligent one. NJ contributed $0 to the pension for three years, I think it was 2002, 2003, and 2004. In 2000, they reduced the teacher contribution to 3% of pay from 5% of pay.
Man, I thought we were high in Texas (7.2% employee 6.8% state with 0.2-0.3% increase scheduled for the next few years). Our benefit in non-COLA'ed though, so makes payouts a little easier.
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I assume you find 401k contributions by all employers to be similarly objectionable? And private pensions as well? After all, in all those cases you're getting someone else to pay for your retirement just as much as government pensions.
Either you don't know what a 401k is, or you don't know what an employer contribution is. I'll explain both under the assumption that you don't know anything.
A 401k plan is a defined contribution plan. This means contributions are defined and paid for in concert with actual employee pay. You claim somebody else pays for this, but that is false and illegal. It is illegal for any other individual or company to pay for your 401k. This is unlike a Roth IRA, where it's legal for any taxpayer to make your Roth IRA contribution, so long as it doesn't exceed your taxable income. There is no guarantee of what you will get out of a 401k, only that the money going in to the plan has actually been paid into the plan and accounted for every single year. This is why it's called defined contribution: because the contributions are defined and paid for during each tax year.
Now an employer contribution is very similar. It's still really you the employee paying for it, but as another employee benefit program that you receive. Companies like to say that the company is paying for it so they can engender employee loyalty. So the employer may make a contribution to that account too. They can do this with each paycheck, quarterly, annually, or whatever schedule they would like, but it has to be paid for during the year the contribution was defined.
The end effect is that when you retire, all of those defined contributions are what you can retire on. Again, you make a false claim that you're "living off someone else" but a 401k cannot receive ANY additional contributions once you are no longer working. Nobody else pays in to your 401k once you retire.
Does this help you to understand what these things are which you do not understand or know anything about?
I'll also take a moment to describe a pension. A pension is a defined benefit plan. This means the employee may contribute as little as $0 to the plan and the employer may contribute as little as $0 to the plan, although generally there are laws which state the employer is supposed to make contributions to fund the plan by a certain amount every year. Many cheat and use false projections with regards to life expectancy, actual benefits, investment returns, and so on. They do this so that the people who are currently paying for the plan can pay less.
So what about retiring? Because a pension is a defined benefit, once you've qualified for the defined benefit, it's guaranteed to you. There's even a taxpayer funded organization called the Pension Benefit Guaranty Corporation the absolutely guarantees you get paid. Again, there's rules and qualifications but the bottom line is that tons of companies and governments set up pensions with a defined benefit, continually underfund, then go bankrupt and pass it off to the PBGC to pay out their benefit. Effectively saying that somebody else needs to pay for them now. Pensions are a system of making it possible to NOT pay for your own retirement, then require somebody else to pay for your retirement.
Not every pension does this, but enough of them have done it to cause major problems for all of those who are still working and paying taxes. Still, the basic model of a government pension in particular is that the current retirees are being paid from the wages of the current workers and taxpayers. The money goes from those employees and taxpayers into the underfunded pension which then turns around and sends the money out to retirees. The fund itself is effectively just a pass-through.
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I assume you find 401k contributions by all employers to be similarly objectionable? And private pensions as well? After all, in all those cases you're getting someone else to pay for your retirement just as much as government pensions.
Either you don't know what a 401k is, or you don't know what an employer contribution is. I'll explain both under the assumption that you don't know anything.
A 401k plan is a defined contribution plan. This means contributions are defined and paid for in concert with actual employee pay. You claim somebody else pays for this, but that is false and illegal. It is illegal for any other individual or company to pay for your 401k. This is unlike a Roth IRA, where it's legal for any taxpayer to make your Roth IRA contribution, so long as it doesn't exceed your taxable income. There is no guarantee of what you will get out of a 401k, only that the money going in to the plan has actually been paid into the plan and accounted for every single year. This is why it's called defined contribution: because the contributions are defined and paid for during each tax year.
It is unsurprising that someone so offensive is also so factually incorrect. Have you ever heard of an employer match? That's when an employer contributes to your 401k, as part of your compensation.
It's exactly analogous to an employer contributing to a pension.
Now an employer contribution is very similar. It's still really you the employee paying for it, but as another employee benefit program that you receive. Companies like to say that the company is paying for it so they can engender employee loyalty. So the employer may make a contribution to that account too. They can do this with each paycheck, quarterly, annually, or whatever schedule they would like, but it has to be paid for during the year the contribution was defined.
Hey look, this paragraph contradicts your last one!
The end effect is that when you retire, all of those defined contributions are what you can retire on. Again, you make a false claim that you're "living off someone else" but a 401k cannot receive ANY additional contributions once you are no longer working. Nobody else pays in to your 401k once you retire.
True.. but irrelevant.
Does this help you to understand what these things are which you do not understand or know anything about?
More offensive words! I bet you win a lot of arguments this way.
I'll also take a moment to describe a pension. A pension is a defined benefit plan. This means the employee may contribute as little as $0 to the plan and the employer may contribute as little as $0 to the plan, although generally there are laws which state the employer is supposed to make contributions to fund the plan by a certain amount every year. Many cheat and use false projections with regards to life expectancy, actual benefits, investment returns, and so on. They do this so that the people who are currently paying for the plan can pay less.
So what about retiring? Because a pension is a defined benefit, once you've qualified for the defined benefit, it's guaranteed to you. There's even a taxpayer funded organization called the Pension Benefit Guaranty Corporation the absolutely guarantees you get paid. Again, there's rules and qualifications but the bottom line is that tons of companies and governments set up pensions with a defined benefit, continually underfund, then go bankrupt and pass it off to the PBGC to pay out their benefit. Effectively saying that somebody else needs to pay for them now. Pensions are a system of making it possible to NOT pay for your own retirement, then require somebody else to pay for your retirement.
Not every pension does this, but enough of them have done it to cause major problems for all of those who are still working and paying taxes. Still, the basic model of a government pension in particular is that the current retirees are being paid from the wages of the current workers and taxpayers. The money goes from those employees and taxpayers into the underfunded pension which then turns around and sends the money out to retirees. The fund itself is effectively just a pass-through.
You've reasonably described how defined benefit plans work, although you have a few factual errors. The PBGC does not guarantee any government pensions at any level. And it only guarantees up to a certain level of benefits (though this level is high enough that it covers most employees).
I'd like to revisit this:
Pensions are a system of making it possible to NOT pay for your own retirement, then require somebody else to pay for your retirement.
If you have the worst possible view of pensions, this is true. But can you give us some data as to how often this happens? If not, it appears you're arguing against pensions on some sort of principle.
In contrast, I have already provided a link in this thread that shows a well-run pension program can provide pension benefits at a cost comparable to a 401k.
I understand the frustration that some pension plans have been run poorly, and that this raises the long-term cost to taxpayers because of the failure of elected officials. But you know what? Roads and bridges are sometimes designed poorly by elected officials, but that doesn't get the state off the hook for paying the people who actually built the roads or bridges.
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As a NJ resident (although not a home owner.. yet) this definitely scares me. I grew up in NJ so most of my family and friends live here, but with cost of living already so high the outlook is pretty bleak. There just doesn't seem to be any willingness on either side to make something work. Is this really where I want to put down stakes? If I really wanted to stay local I could do what so many of my coworkers have done and move to PA.
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Pennsylvania actually has a massive pension problem as well. I haven't researched that situation as closely but I used to live there. They have basically 0 reserves for a rainy day in their budget and their pension problem is similarly awful, though with a longer time horizon before the fund fails. The big difference between Jersey and PA is the starting level for taxes. Property and income taxes are way lower in Pennsylvania and thus there's plenty of room to raise revenues to pay for the defined benefits if the political will is there. Since they just elected a liberal Democrat in Tom Wolf I'd expect they would get something done.
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This was big news around 2012 for many state governments. A lot of them were looking to get out of the pension business entirely because the current and projected pension liabilities were quickly outrunning the tax base. This is one of the big reasons why the DoD just changed its pension plan to make it more user-funded. It's a problem we seem to have for most state and federal budgets. Benefits and budgets steadily rise, but the system to fund them doesn't keep up. Not only can we figure this out ahead of time with high school math, but we consciously avoid fixing the problem knowing it only gets worse the longer we wait.
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This was big news around 2012 for many state governments. A lot of them were looking to get out of the pension business entirely because the current and projected pension liabilities were quickly outrunning the tax base. This is one of the big reasons why the DoD just changed its pension plan to make it more user-funded. It's a problem we seem to have for most state and federal budgets. Benefits and budgets steadily rise, but the system to fund them doesn't keep up. Not only can we figure this out ahead of time with high school math, but we consciously avoid fixing the problem knowing it only gets worse the longer we wait.
That's the most frustrating part, everyone knows it's an issue but it's unpopular so politicians aren't going to do anything until they HAVE to.
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That's the most frustrating part, everyone knows it's an issue but it's unpopular so politicians aren't going to do anything until they HAVE to.
I'm guessing it's tough to campaign on a platform of; "tough on retired cops,firefighters and teachers" ?
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For anyone interested, I'm publishing a follow up to this article, called Jersey will have a 10 billion budget hole in 10 years. It's not just the Teachers' pension, its all of them. Basically the public employees, state troopers, judges, local police and fire are all screwed. The teachers just happen to be the worst funded big system. The local police and fire though are the best funded bc they get local govt contributions, which are much better off than the state budgets.
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Here's a preview of what's going to happen when the shit hits the fan.
http://www.usatoday.com/story/news/nation-now/2016/01/19/new-detroit-teacher-sickout-looms/79042448/ (http://www.usatoday.com/story/news/nation-now/2016/01/19/new-detroit-teacher-sickout-looms/79042448/)
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I've shared this article before, but it's worth sharing again. The blame lies solely with the greedy, asshole politicians who neglected to live up to their side of the bargain, and get to walk away scot-free, unharmed -- NOT with the public service employees who lived up to their end of the bargain and expected to realize the benefits of that bargain. And now, of course, Wall St. smells money and is rushing in to siphon off as much of it as they can, aided, as usual, by the same greedy fuckheads:
http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926
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7.5% contribution rate? AZ teachers pay 11.5%, with an equal match from the district or agency. So 23% contribution rate per future retiree. Pays to live in a financially responsible red state sometimes...
Figure average $40K for 30 years, that is ~$1.2M in principle. For roughly $48K per person SWR, assuming no accumulated interest. And people still talk about it being underfunded.
Wow really? That's a massive contribution. The comment on the Massachusetts pension was a very intelligent one. NJ contributed $0 to the pension for three years, I think it was 2002, 2003, and 2004. In 2000, they reduced the teacher contribution to 3% of pay from 5% of pay.
Man, I thought we were high in Texas (7.2% employee 6.8% state with 0.2-0.3% increase scheduled for the next few years). Our benefit in non-COLA'ed though, so makes payouts a little easier.
haha, Here the state kicks in 18% and the employee 8%, though the pension is a sub in for SS and is COLAd. A typical retiree gets about a 75% income replacement for a full 30 yr career. The fund was looking bleak for awhile but recent third-party actuarial reports are showing that the legislated changes have saved the fund.
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NJ has the highest effective property tax rates in the country. It has among the highest income tax rates. For a long time 2 of its major industries were telecom and pharma. But after the AT&T breakup much of the technical strength in telecom dissipated or moved elsewhere. And lately cutting edge pharma research is shifting its approach and moving elsewhere (like Boston). A major government facilities, Ft. Monmouth, has closed. The state is now 35thin population growth. Financial industry is still strong but helps mostly northern NJ. It's extremely high COLA. E.g., car insurance is double other states (NJ is #10 in cost). The trend towards moving from suburbs to big cities will not help (not a lot of big cities in the state; Newark is largest at ~250K). There is no exciting up and coming place to live such as Wiliamsburg or downtown Philly. It's still a rich state (#2 in both per capita and household income), but the long term outlook for the state is worrisome.
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As a NJ resident (although not a home owner.. yet) this definitely scares me. I grew up in NJ so most of my family and friends live here, but with cost of living already so high the outlook is pretty bleak. There just doesn't seem to be any willingness on either side to make something work. Is this really where I want to put down stakes? If I really wanted to stay local I could do what so many of my coworkers have done and move to PA.
Jersey Mark, we have a similar government-employee pension debacle brewing here in PA as well.
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There is something similar happening in IL, where the teacher's pension is very much underfunded. I think it also had the same thing of the state either no paying into, or paying less into the pension fund than they were supposed to be doing. Short-sighted.
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Pennsylvania actually has a massive pension problem as well. I haven't researched that situation as closely but I used to live there. They have basically 0 reserves for a rainy day in their budget and their pension problem is similarly awful, though with a longer time horizon before the fund fails. The big difference between Jersey and PA is the starting level for taxes. Property and income taxes are way lower in Pennsylvania and thus there's plenty of room to raise revenues to pay for the defined benefits if the political will is there. Since they just elected a liberal Democrat in Tom Wolf I'd expect they would get something done.
Hah. We can't even get a budget. The governor vetoed an entire budget in June, then the House Republicans spent months complaining about he was being unreasonable, then House and Senate leaders agreed with the Governor on a budget, which the House then didn't pass, then the Governor released funds for schools and non-profits so they finally had the money they are budgeted, and now it's January and we still don't have a budget. Pension reform keeps getting brought up, but the House Republicans aren't budging. And Governor Wolf isn't really making any gains. So hah that's funny in a sad way.
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Interesting, just read this today forwarded from the finance buff's weekly friday update (highly recommended free subscription )
"Moody’s singled out New Jersey for special mention. The credit analysts compared what a state is adding to the pension pot to the amount it should be adding in order to eventually catch up. Most of the states are chipping in at least 90% of what’s due annually. New Jersey is paying only 19%."
http://www.forbes.com/sites/baldwin/2016/01/16/state-pension-funds-as-broke-as-ever/#749806244900
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I assume you find 401k contributions by all employers to be similarly objectionable? And private pensions as well? After all, in all those cases you're getting someone else to pay for your retirement just as much as government pensions.
Either you don't know what a 401k is, or you don't know what an employer contribution is. I'll explain both under the assumption that you don't know anything.
A 401k plan is a defined contribution plan. This means contributions are defined and paid for in concert with actual employee pay. You claim somebody else pays for this, but that is false and illegal. It is illegal for any other individual or company to pay for your 401k. This is unlike a Roth IRA, where it's legal for any taxpayer to make your Roth IRA contribution, so long as it doesn't exceed your taxable income. There is no guarantee of what you will get out of a 401k, only that the money going in to the plan has actually been paid into the plan and accounted for every single year. This is why it's called defined contribution: because the contributions are defined and paid for during each tax year.
It is unsurprising that someone so offensive is also so factually incorrect. Have you ever heard of an employer match? That's when an employer contributes to your 401k, as part of your compensation.
It's exactly analogous to an employer contributing to a pension.
Now an employer contribution is very similar. It's still really you the employee paying for it, but as another employee benefit program that you receive. Companies like to say that the company is paying for it so they can engender employee loyalty. So the employer may make a contribution to that account too. They can do this with each paycheck, quarterly, annually, or whatever schedule they would like, but it has to be paid for during the year the contribution was defined.
Hey look, this paragraph contradicts your last one!
The end effect is that when you retire, all of those defined contributions are what you can retire on. Again, you make a false claim that you're "living off someone else" but a 401k cannot receive ANY additional contributions once you are no longer working. Nobody else pays in to your 401k once you retire.
True.. but irrelevant.
Does this help you to understand what these things are which you do not understand or know anything about?
More offensive words! I bet you win a lot of arguments this way.
I'll also take a moment to describe a pension. A pension is a defined benefit plan. This means the employee may contribute as little as $0 to the plan and the employer may contribute as little as $0 to the plan, although generally there are laws which state the employer is supposed to make contributions to fund the plan by a certain amount every year. Many cheat and use false projections with regards to life expectancy, actual benefits, investment returns, and so on. They do this so that the people who are currently paying for the plan can pay less.
So what about retiring? Because a pension is a defined benefit, once you've qualified for the defined benefit, it's guaranteed to you. There's even a taxpayer funded organization called the Pension Benefit Guaranty Corporation the absolutely guarantees you get paid. Again, there's rules and qualifications but the bottom line is that tons of companies and governments set up pensions with a defined benefit, continually underfund, then go bankrupt and pass it off to the PBGC to pay out their benefit. Effectively saying that somebody else needs to pay for them now. Pensions are a system of making it possible to NOT pay for your own retirement, then require somebody else to pay for your retirement.
Not every pension does this, but enough of them have done it to cause major problems for all of those who are still working and paying taxes. Still, the basic model of a government pension in particular is that the current retirees are being paid from the wages of the current workers and taxpayers. The money goes from those employees and taxpayers into the underfunded pension which then turns around and sends the money out to retirees. The fund itself is effectively just a pass-through.
You've reasonably described how defined benefit plans work, although you have a few factual errors. The PBGC does not guarantee any government pensions at any level. And it only guarantees up to a certain level of benefits (though this level is high enough that it covers most employees).
I'd like to revisit this:
Pensions are a system of making it possible to NOT pay for your own retirement, then require somebody else to pay for your retirement.
If you have the worst possible view of pensions, this is true. But can you give us some data as to how often this happens? If not, it appears you're arguing against pensions on some sort of principle.
In contrast, I have already provided a link in this thread that shows a well-run pension program can provide pension benefits at a cost comparable to a 401k.
I understand the frustration that some pension plans have been run poorly, and that this raises the long-term cost to taxpayers because of the failure of elected officials. But you know what? Roads and bridges are sometimes designed poorly by elected officials, but that doesn't get the state off the hook for paying the people who actually built the roads or bridges.
I think you missed a couple of important words above.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
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Which is why my plan is to FIRE and GTFO of this awful state in less than 10 years.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
Pension vs. 401(k)
There are some notable differences between defined benefit pension plans and defined benefit contribution plans such as 401(k) plans. The biggest difference for the employer is the annual funding obligation associated with defined benefit pension plans. The biggest difference for employees is who bears the risk of loss - in the case of pensions, the employer - if the stock market tanks as the employee nears retirement. However, there are some other differences worth noting.
Matching requirements: Employees often forego participation in 401(k) plans because they don’t think they can afford to contribute while employer contributions to 401(k) plans are often limited to matching contributions. In contrast, employees are generally not required to contribute to pension plans.
Portability: Today’s more mobile workforce may see some advantages to 401(k) plans that earlier generations might have discounted. The portability of a 401(k) plan may provide a benefit to those workers who frequently change jobs over their careers. In contrast, a defined benefit pension plan is typically most advantageous to an older worker who has stayed in the same job for many years since the typical pension plan formula provides a maximum benefit based on years of service and the employee’s final salary.
Risks: Defined benefit pension plans hold all assets in a single pooled trust from which benefits are drawn when each employee retires. Employees do not have individual accounts as part of a traditional defined benefit pension plan, and are guaranteed a payout regardless of market performance, though there are some risks as the federal government ensures them to certain limits. In 401(k) plans, employees can control where money is invested, but if the market crashes, so (in all likelihood) does their portfolio.
Disbursement Rules: Unlike defined contribution plans, defined benefit pension plans cannot make in-service or hardship distributions to employees. However, loans may be made to employees if the plan is designed to satisfy certain tax requirements.
Tax Advantages: If a pension plan meets the required qualification standards, then employers receive a federal corporate income tax deduction for contributions made to the plan (subject to certain limits that prevent employers from receiving tax benefits for “overfunding” a pension plan). Employees do not have to report any income until distributions are made, and earnings within the plan are accumulated on a tax-free basis. Comparable tax benefits apply to 401(k) plans, but the tax deductions for pension plans are higher as the annual contribution limits are higher.
Determining Funding Obligations: An employer’s biggest fear related to establishing a defined benefit pension plan typically relates to the funding obligations. The plan’s funding obligations are determined annually based on the plan’s assets versus its obligations to retirees. The plan’s assets depend on both investment performance and the rate at which assets must be expended to fund obligations to retirees. It is crucial to have expert actuarial and investment advice regarding the anticipated funding obligations.
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
Yes, it's an oversimplification, and yes there are other differences. But neither is important to the point that both are compensation earned for doing a job – neither is "somebody else paying for our retirement" unless "wages" are "someone else paying for our retirement." And that's what I was pointing out in my posts to Sid.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
Yes, it's an oversimplification, and yes there are other differences. But neither is important to the point that both are compensation earned for doing a job – neither is "somebody else paying for our retirement" unless "wages" are "someone else paying for our retirement." And that's what I was pointing out in my posts to Sid.
With a 401k, you are solely funding your retirement with your own funds and funds provided by your employer as part of your direct compensation package. What you put in, plus gains, is what you get out.
With a defined benefit plan, the amount of money you have contributed is not relevant to what you get back out of it.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
Yes, it's an oversimplification, and yes there are other differences. But neither is important to the point that both are compensation earned for doing a job – neither is "somebody else paying for our retirement" unless "wages" are "someone else paying for our retirement." And that's what I was pointing out in my posts to Sid.
With a 401k, you are solely funding your retirement with your own funds and funds provided by your employer as part of your direct compensation package. What you put in, plus gains, is what you get out.
With a defined benefit plan, the amount of money you have contributed is not relevant to what you get back out of it.
This is true. It's also irrelevant as both are wages owed to you as far of your compensation. The fact that one of them is deferred compensation doesn't mean that "someone else is paying for your retirement" any more than it would be if you agreed to defer some compensation for any other reason (while not common, a number of athletes contracts contain deferred compensation sometimes for decades after the player stops playing).
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
Yes, it's an oversimplification, and yes there are other differences. But neither is important to the point that both are compensation earned for doing a job – neither is "somebody else paying for our retirement" unless "wages" are "someone else paying for our retirement." And that's what I was pointing out in my posts to Sid.
With a 401k, you are solely funding your retirement with your own funds and funds provided by your employer as part of your direct compensation package. What you put in, plus gains, is what you get out.
With a defined benefit plan, the amount of money you have contributed is not relevant to what you get back out of it.
This is true. It's also irrelevant as both are wages owed to you as far of your compensation. The fact that one of them is deferred compensation doesn't mean that "someone else is paying for your retirement" any more than it would be if you agreed to defer some compensation for any other reason (while not common, a number of athletes contracts contain deferred compensation sometimes for decades after the player stops playing).
So if the funds you contributed yourself are inadequate to fund your retirement, yet you still receive payment, who's paying for it? Nobody is saying they aren't "owed to the employee" - that was their deal when they were hired - but their own contributions are inadequate to fund their payments. In this case, the state fell short, so the state has to make up for it somehow, so I pay for it with taxes.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
Yes, it's an oversimplification, and yes there are other differences. But neither is important to the point that both are compensation earned for doing a job – neither is "somebody else paying for our retirement" unless "wages" are "someone else paying for our retirement." And that's what I was pointing out in my posts to Sid.
With a 401k, you are solely funding your retirement with your own funds and funds provided by your employer as part of your direct compensation package. What you put in, plus gains, is what you get out.
With a defined benefit plan, the amount of money you have contributed is not relevant to what you get back out of it.
This is true. It's also irrelevant as both are wages owed to you as far of your compensation. The fact that one of them is deferred compensation doesn't mean that "someone else is paying for your retirement" any more than it would be if you agreed to defer some compensation for any other reason (while not common, a number of athletes contracts contain deferred compensation sometimes for decades after the player stops playing).
So if the funds you contributed yourself are inadequate to fund your retirement, yet you still receive payment, who's paying for it? Nobody is saying they aren't "owed to the employee" - that was their deal when they were hired - but their own contributions are inadequate to fund their payments. In this case, the state fell short, so the state has to make up for it somehow, so I pay for it with taxes.
Maybe this is a semantic difference. All employee compensation is paid by the employer and earned by the employee. So I guess the employer "pays for it" regardless. But it's earned by the employee regardless.
Sid didn't specifically say employees weren't owed their pensions - but he did say that the way they were funded was criminal.
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I think you missed a couple of important words above.
The point is that employer contributions to a retirement plan are a part of your compensation, regardless of whether it's a defined contribution or defined benefit plan. When Sid implied one of them is "somebody else pay[ing] for our retirement" but not the other, I pointed out that that makes no sense.
It makes perfect sense. Unless you are claiming that pension funds are on an individual basis and only contain funding gathered from the employee and the employer's defined contribution (generally as a percentage of that employee's pay)?
It doesn't make sense to me. Both employer contributions to defined benefit plans and employer contributions to defined contribution plans are part of compensation. The only difference is who assumes the risk of investments returning less than the anticipated amount – and who benefits if the investments return more than the anticipated amount.
When a state like NJ doesn't make required pension payments, it's functionally equivalent to an employer not making the required match as stipulated by employee contracts. That's a failure of the state, not of defined benefit plans in general.
That's quite the oversimplification.
http://www.gcglaw.com/resources/employment/pension_401k.html
An employer not contributing to a 401k would reduce the balance in an individual's retirement account. An employer not contributing to a pension fund will reduce the balance in the pension fund, but does not reduce any individual balances - nor does it lower the benefit entitled to employees.
Yes, it's an oversimplification, and yes there are other differences. But neither is important to the point that both are compensation earned for doing a job – neither is "somebody else paying for our retirement" unless "wages" are "someone else paying for our retirement." And that's what I was pointing out in my posts to Sid.
With a 401k, you are solely funding your retirement with your own funds and funds provided by your employer as part of your direct compensation package. What you put in, plus gains, is what you get out.
With a defined benefit plan, the amount of money you have contributed is not relevant to what you get back out of it.
This is true. It's also irrelevant as both are wages owed to you as far of your compensation. The fact that one of them is deferred compensation doesn't mean that "someone else is paying for your retirement" any more than it would be if you agreed to defer some compensation for any other reason (while not common, a number of athletes contracts contain deferred compensation sometimes for decades after the player stops playing).
So if the funds you contributed yourself are inadequate to fund your retirement, yet you still receive payment, who's paying for it? Nobody is saying they aren't "owed to the employee" - that was their deal when they were hired - but their own contributions are inadequate to fund their payments. In this case, the state fell short, so the state has to make up for it somehow, so I pay for it with taxes.
Maybe this is a semantic difference. All employee compensation is paid by the employer and earned by the employee. So I guess the employer "pays for it" regardless. But it's earned by the employee regardless.
Sid didn't specifically say employees weren't owed their pensions - but he did say that the way they were funded was criminal.
That may be the case. My interpretation, for what it's worth: it's earned by the employee, but due to mismanagement of the pension system, the employee (and employer contributions at the time) were inadequate to pay for what was earned...so the money has to come from somewhere. In this case, being a government entity, it comes out of taxes -- so instead of adjusting the compensation package at the time to reflect future need, they will end up leaning on taxpayers to fund retirements. Ergo, someone else is paying for their retirement (because they did not contribute enough to cover what they will be paid).
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That may be the case. My interpretation, for what it's worth: it's earned by the employee, but due to mismanagement of the pension system, the employee (and employer contributions at the time) were inadequate to pay for what was earned...so the money has to come from somewhere. In this case, being a government entity, it comes out of taxes -- so instead of adjusting the compensation package at the time to reflect future need, they will end up leaning on taxpayers to fund retirements. Ergo, someone else is paying for their retirement (because they did not contribute enough to cover what they will be paid).
Ah, here's the thing. The employee negotiates a contract, and receives certain compensation. It is not the employee's fault if the employer fails to optimally allocate employer contributions. The employee literally has no power to change that. Furthermore, the plan agreed to by the union would have been sufficient if the employer has contributed its contractually obligated share.
Now, by now contributing the employer's contractually obligated share, the state was able to either have increased services or lower taxes than it would have had it contributed its share. Yes, the current trajectory suggests that NJ will have to raise taxes (or cut spending) to fund its pensions. But this is only because the state gave more services, or had lower taxes, in the past – in this case, for at least the last 15 years.
Putting one iota of the blame for the pensions crisis on the employees is ludicrous. It is entirely due to the state failing to make required contributions.
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The employee negotiates a contract, and receives certain compensation. It is not the employee's fault if the employer fails to optimally allocate employer contributions. The employee literally has no power to change that. Furthermore, the plan agreed to by the union would have been sufficient if the employer has contributed its contractually obligated share.
Except neither is really negotiating in a free market.
The state has to employ teachers, it can't decide to get out of the school business if wages are too high.
They also know that while wages have to be paid now, pension obligations can be booted down the road until another lot are elected.
Meanwhile they can spend the money on things that will get them elected now.
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I assume you find 401k contributions by all employers to be similarly objectionable? And private pensions as well? After all, in all those cases you're getting someone else to pay for your retirement just as much as government pensions.
Either you don't know what a 401k is, or you don't know what an employer contribution is. I'll explain both under the assumption that you don't know anything.
A 401k plan is a defined contribution plan. This means contributions are defined and paid for in concert with actual employee pay. You claim somebody else pays for this, but that is false and illegal. It is illegal for any other individual or company to pay for your 401k. This is unlike a Roth IRA, where it's legal for any taxpayer to make your Roth IRA contribution, so long as it doesn't exceed your taxable income. There is no guarantee of what you will get out of a 401k, only that the money going in to the plan has actually been paid into the plan and accounted for every single year. This is why it's called defined contribution: because the contributions are defined and paid for during each tax year.
Now an employer contribution is very similar. It's still really you the employee paying for it, but as another employee benefit program that you receive. Companies like to say that the company is paying for it so they can engender employee loyalty. So the employer may make a contribution to that account too. They can do this with each paycheck, quarterly, annually, or whatever schedule they would like, but it has to be paid for during the year the contribution was defined.
The end effect is that when you retire, all of those defined contributions are what you can retire on. Again, you make a false claim that you're "living off someone else" but a 401k cannot receive ANY additional contributions once you are no longer working. Nobody else pays in to your 401k once you retire.
Does this help you to understand what these things are which you do not understand or know anything about?
I'll also take a moment to describe a pension. A pension is a defined benefit plan. This means the employee may contribute as little as $0 to the plan and the employer may contribute as little as $0 to the plan, although generally there are laws which state the employer is supposed to make contributions to fund the plan by a certain amount every year. Many cheat and use false projections with regards to life expectancy, actual benefits, investment returns, and so on. They do this so that the people who are currently paying for the plan can pay less.
So what about retiring? Because a pension is a defined benefit, once you've qualified for the defined benefit, it's guaranteed to you. There's even a taxpayer funded organization called the Pension Benefit Guaranty Corporation the absolutely guarantees you get paid. Again, there's rules and qualifications but the bottom line is that tons of companies and governments set up pensions with a defined benefit, continually underfund, then go bankrupt and pass it off to the PBGC to pay out their benefit. Effectively saying that somebody else needs to pay for them now. Pensions are a system of making it possible to NOT pay for your own retirement, then require somebody else to pay for your retirement.
Not every pension does this, but enough of them have done it to cause major problems for all of those who are still working and paying taxes. Still, the basic model of a government pension in particular is that the current retirees are being paid from the wages of the current workers and taxpayers. The money goes from those employees and taxpayers into the underfunded pension which then turns around and sends the money out to retirees. The fund itself is effectively just a pass-through.
This whole post is a great illustration of why it's so unhelpful to even have a conversation when we're unlikely to ever agree on what money "is" and what the economy "is" that we may as well just call it quits.
The existence of currency in the first place is social welfare. If you purchase things with currency, instead of trading for it with berries you found in the forest while fending off a bear, you are living off someone else. This make-believe thing where people pretend to be iconoclast islands whose TAX DOLLARS are supporting the NO GOOD TAKERS is insane because everyone is a taker unless you live naked in the forest and eat grubs.
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Where I am in GA, in the past few years they changed the newly hired teachers and therapists to have a 10 year vesting in order to make up $. At 10 years it's only partial vesting. I can't remember the percent of my pay that they are putting into the system but it was a double digits. But I don't expect to see any of it and they seem to be hoping I won't either.
Then they put out stats and messages "Why are new teachers leaving the field before 5 years?" Over 75% of new teachers leave before 5 years. So they are playing on that to fund the existing and soon to be retirees. Retention in my school is terrible. Either you've been there 1 year or maybe 2, or it's 20 years. I haven't met anybody who is in the middle.
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Where I am in GA, in the past few years they changed the newly hired teachers and therapists to have a 10 year vesting in order to make up $. At 10 years it's only partial vesting. I can't remember the percent of my pay that they are putting into the system but it was a double digits. But I don't expect to see any of it and they seem to be hoping I won't either.
Then they put out stats and messages "Why are new teachers leaving the field before 5 years?" Over 75% of new teachers leave before 5 years. So they are playing on that to fund the existing and soon to be retirees. Retention in my school is terrible. Either you've been there 1 year or maybe 2, or it's 20 years. I haven't met anybody who is in the middle.
This is a good example of what I think is the largest problem with the pension system: a lack of any substantial benefits if you don't hit the vesting point. Most pensions I've seen take between 5 and 10 years to vest, and if you leave before then, you usually get your contributions yet, but not anything that the employer contributed. And if you get any returns on your money at all it's usually a tiny amount of interest. This is another pension funding mechanism, actually: the people who stay in the pension plan benefit from those who worked in the system but never vested.
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Where I am in GA, in the past few years they changed the newly hired teachers and therapists to have a 10 year vesting in order to make up $. At 10 years it's only partial vesting. I can't remember the percent of my pay that they are putting into the system but it was a double digits. But I don't expect to see any of it and they seem to be hoping I won't either.
Then they put out stats and messages "Why are new teachers leaving the field before 5 years?" Over 75% of new teachers leave before 5 years. So they are playing on that to fund the existing and soon to be retirees. Retention in my school is terrible. Either you've been there 1 year or maybe 2, or it's 20 years. I haven't met anybody who is in the middle.
This is a good example of what I think is the largest problem with the pension system: a lack of any substantial benefits if you don't hit the vesting point. Most pensions I've seen take between 5 and 10 years to vest, and if you leave before then, you usually get your contributions yet, but not anything that the employer contributed. And if you get any returns on your money at all it's usually a tiny amount of interest. This is another pension funding mechanism, actually: the people who stay in the pension plan benefit from those who worked in the system but never vested.
Which is, effectively, other people paying for their retirements. ;)
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Where I am in GA, in the past few years they changed the newly hired teachers and therapists to have a 10 year vesting in order to make up $. At 10 years it's only partial vesting. I can't remember the percent of my pay that they are putting into the system but it was a double digits. But I don't expect to see any of it and they seem to be hoping I won't either.
Then they put out stats and messages "Why are new teachers leaving the field before 5 years?" Over 75% of new teachers leave before 5 years. So they are playing on that to fund the existing and soon to be retirees. Retention in my school is terrible. Either you've been there 1 year or maybe 2, or it's 20 years. I haven't met anybody who is in the middle.
This is a good example of what I think is the largest problem with the pension system: a lack of any substantial benefits if you don't hit the vesting point. Most pensions I've seen take between 5 and 10 years to vest, and if you leave before then, you usually get your contributions yet, but not anything that the employer contributed. And if you get any returns on your money at all it's usually a tiny amount of interest. This is another pension funding mechanism, actually: the people who stay in the pension plan benefit from those who worked in the system but never vested.
Which is, effectively, other people paying for their retirements. ;)
Ha! Yes, I'll grant you that public employees benefit from other employees who don't vest.
Well played, JLee.
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I read all the information when I was hired and don't remember the details exactly. But yes I get back what I put in, the interest will be almost nothing. The fees are terrible for when I withdraw it (for leaving the job). I don't have any choice in the pension part they take out of my pa. They just take it. If I go down to part time - that's a different system and I would be "out" of the 10 year vesting. So if something happened and I needed to go to part time I'd have to restart the 10 year clock. Same if quit and come back later.
This system is further messed up in that the district opted out of social security when they still could. So you could work for them for 9.5 years. Leave with nothing but your own input AND have accumulated nothing for SS credit.
I decided to spend a year here for personal reasons but there's nothing for an incentive to do any more time here.
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The fees are terrible for when I withdraw it (for leaving the job). I don't have any choice in the pension part they take out of my pa. They just take it. If I go down to part time - that's a different system and I would be "out" of the 10 year vesting.....
This system is further messed up in that the district opted out of social security when they still could. So you could work for them for 9.5 years. Leave with nothing but your own input AND have accumulated nothing for SS credit.
Didn't you chaps have a civil war to abolish these sort of contracts ?
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Ha! Yes, I'll grant you that public employees benefit from other employees who don't vest.
Well played, JLee.
Yeah it's not funny to the people who get cut. One of my distant family members bounced around between multiple public schools and is now in their 50's with low income, poor income prospects, and I'm not sure any vesting from any of the school pension programs. It gets even worse though: many government pensions opt their employees out of Social Security!
So not only does the pension take money from every which direction it's able to, if the employees actually want to be mobile, able to switch jobs, etc. they never vest. Unlike a 401k, they can't roll the money over to an IRA and take it with them. Since the government pension opted them out of Social Security, they don't even have that to fall back on. They're totally screwed, all because a few greedy people wanted to find a way to milk the pensions to their own personal benefit.
At the very least we need to change the law and not permit ANY worker to opt out of Social Security. The current system is a failure because once opted out, if that employee doesn't vest for whatever reason (such as a person who moves several times in their life, health condition requiring unpaid time off and thus officially out of a job, divorce from a violent spouse requiring an immediate move) they are just SOL. Nobody should ever be allowed to be exempted from Social Security. It's the one fallback retirement program that actually has mathematical hope of being reasonably solvent if we make just a few changes to improve funding.
Pensions are basically a pyramid scheme where a huge amount of money comes in, but it only gets paid out to the small number of people who make it to the top. Social Security has the opposite payout model, where the more you pay in, the less you get out of it, as a percentage. The funding is 90% of income up to $826/month, 32% up to $4980/month, and just 15% of your income per month above $4980 until you hit the cap where they stop collecting and benefits do not accrue at all. That progressive system where the people who are low income get the greatest percentage benefit is the key to the SS OAB's success over all these years. Well, that and the fact that unless you're a government worker, you can't choose not to pay in to SS, the way you can choose not to pay into IRAs and 401ks. Mandatory payment into SS I guess is the absolute key to its solvency.
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At the very least we need to change the law and not permit ANY worker to opt out of Social Security.
I agree with this, although I note that the employee never has a choice – whether or not the pension plan exempts workers from Social Security is between the pension plan and Social Security.
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At the very least we need to change the law and not permit ANY worker to opt out of Social Security.
How does this work?
Being in Canukistan I understood that everyone paid taxes so that the people who needed help (medical, unemployed,old age) got money.
Are you saying that if I was a Wall St banker in the USA I could say: I'm rich, I'm never going to claim unemployment or old age pension or food stamps so I don't have to pay taxes for them ?
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At the very least we need to change the law and not permit ANY worker to opt out of Social Security.
How does this work?
Being in Canukistan I understood that everyone paid taxes so that the people who needed help (medical, unemployed,old age) got money.
Are you saying that if I was a Wall St banker in the USA I could say: I'm rich, I'm never going to claim unemployment or old age pension or food stamps so I don't have to pay taxes for them ?
No, that's not what the commenter meant to imply.
Certain government employers (such as schools, firefighters, police) can be a part of pension plans that can choose to opt out of SS. The school district I work for pays into a pension and says no to SS. Some districts near us do the state pension and SS, some do just the pension. So it varies by employer.
The only individual that can opt out of SS to my knowledge are pastors.
Sent from my SM-G900V using Tapatalk
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So the government exempts itself from the payroll taxes that 50% of governments blame for everything that's wrong in the economy ?
Is there a conspiracy that the US government is being run solely for the benefit of John Oliver and Jon Stewart's scriptwriters ?
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So the government exempts itself from the payroll taxes that 50% of governments blame for everything that's wrong in the economy ?
Is there a conspiracy that the US government is being run solely for the benefit of John Oliver and Jon Stewart's scriptwriters ?
You do realize there are far more payroll taxes than just Social Security, right?
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And this is why I took the commuted value of my pension when interest rates were low and commuted value was high.
I didn't teach in NJ, but I heard these arguments about my pension, watched as they started clawing back benefits, figured it was only going to get worse, and decided I would rather be on my own.
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You do realize there are far more payroll taxes than just Social Security, right?
But "payroll tax"is normally regarded as the the social security, pension plan,etc parts paid separately- rather than the general income tax
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You do realize there are far more payroll taxes than just Social Security, right?
But "payroll tax"is normally regarded as the the social security, pension plan,etc parts paid separately- rather than the general income tax
IIRC I still paid Medicare taxes with a state retirement plan. I did not pay into social security (though I did pay 11-13% to state retirement), but I am also not eligible for social security credit for the time I worked.
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So the government exempts itself from the payroll taxes that 50% of governments blame for everything that's wrong in the economy ?
Is there a conspiracy that the US government is being run solely for the benefit of John Oliver and Jon Stewart's scriptwriters ?
No. No federal positions are exempt from social security, nor are many state government positions. No one is exempt from Medicare or other "payroll taxes" on the basis of employer.
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So the government exempts itself from the payroll taxes that 50% of governments blame for everything that's wrong in the economy ?
Is there a conspiracy that the US government is being run solely for the benefit of John Oliver and Jon Stewart's scriptwriters ?
What? It's pretty simple. A few states (notably those that decided to create a social security program before the feds) are responsible for their own pensioners. Pensioners generally don't pay into SS and don't receive from SS. There's no conspiracy.
In fact, I'd describe WEP as a conspiracy to deprive pensioners from what ought to be owed from them, earned from their contributions into SS. So if anything, there are plenty of pensioners who pay into SS but receive a poorer benefit than their peers.
edit: see http://www.ssfairness.com/repeal-the-gpo-wep/ Link's biased obviously but it's generally publicly unknown how a pension often means losing a huge chunk of SS benefits.
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A few states (notably those that decided to create a social security program before the feds) are responsible for their own pensioners.
Ok so they still have state paid-for help.
I thought it was that the govt could decide not to pay social security for its employees and if those people need help when they are old - tough.
But I can't opt out of paying taxes for unemployment benefit, even though when I was made redundant my savings/assets were too high to get any money.
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A few states (notably those that decided to create a social security program before the feds) are responsible for their own pensioners.
Ok so they still have state paid-for help.
I thought it was that the govt could decide not to pay social security for its employees and if those people need help when they are old - tough.
But I can't opt out of paying taxes for unemployment benefit, even though when I was made redundant my savings/assets were too high to get any money.
Generally, yes. The basic jist is folks get a state pension or social security; the only reason why states could get away with ss exemption is by having a comparable program. Really it gets more complex because for those that have paid into SS during part of their career and have a non SS covered pension, you get an adjusted SS PIA (your SS benefit) that takes into account number of years with substantial SS covered wages. The PIA can be reduced up to 60%.
Generally the people who are in the 'tough shit' situation are those that didn't have 30 years credited to a pension to receive a full benefit and didn't have 30 years of substantial SS-covered earning years. 'Substantial' in 2015 is 22K of social security taxed annual earnings.
I worked for an employer that could have been SS exempt but decided to opt employees into both the state pension and social security; this is so that all the prior years paying into SS were not for naught.
And yeah, FUTA, SUTA and medicare are not exemptable.
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While the older generation argues about who to point fingers at (the government! the public employee unions! the voters!) I think there was a very important and implicit point made here: there is no such thing as a free lunch. If you underfund your pension, promise higher benefits later, that present money goes somewhere - to other public services / government salaries / tax cuts that couldn't otherwise be afforded. If you increase pension benefits, that future money necessarily means higher taxes or less services / salaries, now or in the future. Conveniently, future voters aren't around right now to interfere with our negotiations.
The people affected most either haven't been born yet, or aren't old enough to vote, but they will get to point fingers at everyone ahead of them - public servants, voters, elected officials - for giving them a negative inheritance, and a bill to pay for the poor stewardship of the past generation.
My general hypothesis: we decided to coast on postwar indefinite optimism about the future, and when the world didn't deliver us automatically bigger and nicer things, we found it easier to legislate ourselves those benefits and have future workers pay for them, rather than do the hard work of Mustachianism and technological / scientific innovation.
I don't begrudge anyone what they have earned, but we should understand what it costs.
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The people affected most either haven't been born yet, or aren't old enough to vote, but they will get to point fingers at everyone ahead of them - public servants, voters, elected officials - for giving them a negative inheritance, and a bill to pay for the poor stewardship of the past generation.
I agree with your general point, but NJ only stopped appropriately funding its pension ~15 years ago. And it was 100% funded as recently as 2003 (http://www.state.nj.us/treasury/pensions/epbam/exhibits/ann-rpts/2004/tpaf.pdf). So by and large, the people who will be affected by increased taxes or lower service will be the same as those who benefited by lower taxes or higher services in the last 13 years.
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Just look at what happened to Detroit after they came out of bankruptcy. Basically the same thing will happen, taxes will go up and pensions will be cut. Nothing to see here, move along.
The market is not expecting this. New Jersey bonds are trading above 100 cents on the dollar, and large NJ mutual funds are still solvent and not imposing withdrawal restrictions. That's why its news.
Vanguard doesn't agree with you, their NJ Tax Free Fund has virtually no NJ GO Bonds in the fund.
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NJ is going to go bankrupt, everyone is down on Cristy but he at least has tried to address the issue. God forbid if a democrat wins as governor.
Here is a link to those having over 100K pensions in NJ.
http://watchdog.org/200210/nj-100k-pensions-double/
Vanguard in their NJ Tax Exempt fund has virtually no NJ General Obligation Bonds in the fund.
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NJ is going to go bankrupt, everyone is down on Cristy but he at least has tried to address the issue.
He "tried to address the issue" by making a deal with the teachers to contribute more of their pay in exchange for the state ever actually contributing an amount required by law. Then he didn't make the contributions he said he would, or required by law.
So, I guess he had good intentions? But he utterly failed to live up to his end of the bargain.
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OP here, I used to trade for the Vanguard Municipal bond funds, including the New Jersey fund. I can comment specifically on that fund only with publicly available information. There is a good reason is doesn't own very many New Jersey GO bonds, it's because there aren't very many of them in existence. New Jersey prefers to issue "appropriation" bonds, that need to be specifically allocated for by the legislature. It's a unique situation that has to do with the restrictive process the state needs to go through to get GO bonds passed, ie needing a state voter approval. Since this is difficult, they've been issuing out of this less secure lien for a long time.
The scary legal ramification is an investor has 0 legal remedy if NJ decides to stop paying this appropriation debt. About 92% of NJ state debt is in this appropriation form. Total debt about 35 billion and appropriation debt is about 33 billion of that. As the Vanguard New Jersey Fund is the largest Jersey fund, it by definition must look similar to the investable universe, meaning appropriation debt of New Jersey is its core holding, as is publicly available to see. i looked up a trade the other day, and a callable bond maturing in 2029, about 3 years past the point where i calculate the annual cash payment of benefits to the teachers pension fund will be about 20% of the NJ budget alone, was sold by a wall street firm to a retail investor at $108. The bond will get back $100 at maturity plus the interest payments. The idea that you would have NJ bonds, the ones that have no legal protections at all compared to more secure GOs, trading over 100 cents on the dollar completely blows my mind. I think investors are totally missing on this. They are letting their greed over tax free interest of 3.5% vs 2% taxable in treasuries completely cloud the fact that they might get pennies on the dollar of their investment in a few years.
New Jersey literally just published their monthly investment report for Nov. on their website. They run two months behind on their monthly financial reporting. Their last annual pension fund report was for the period ended June 30, 2014. The smoke and mirrors come crashing down when people realize the pensions are doomed.
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NJ is going to go bankrupt, everyone is down on Cristy but he at least has tried to address the issue.
He "tried to address the issue" by making a deal with the teachers to contribute more of their pay in exchange for the state ever actually contributing an amount required by law. Then he didn't make the contributions he said he would, or required by law.
So, I guess he had good intentions? But he utterly failed to live up to his end of the bargain.
Isn't that the fate of all social programs though? Social Security taxes have increased by 620% over the life of the program and STILL are projecting a shortfall. We've dumped over $22 trillion dollars into anti-poverty programs since LBJ's War on Poverty started in 1965 and we have more poverty now than we did before 1965. In fact, the only thing anti-poverty programs did was stop the rapid decline of poverty before 1965. Medicare and Medicaid are responsible for the dramatic rise in healthcare costs per capita since 1965. We just continue to ignore failure after failure because it's politically unpopular to stop distributing other people's money to the poor.
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Isn't that the fate of all social programs though? Social Security taxes have increased by 620% over the life of the program and STILL are projecting a shortfall. We've dumped over $22 trillion dollars into anti-poverty programs since LBJ's War on Poverty started in 1965 and we have more poverty now than we did before 1965. In fact, the only thing anti-poverty programs did was stop the rapid decline of poverty before 1965. Medicare and Medicaid are responsible for the dramatic rise in healthcare costs per capita since 1965. We just continue to ignore failure after failure because it's politically unpopular to stop distributing other people's money to the poor.
Social Security WOULD be fine if they didn't raid it for things that aren't paying Social Security benefits. When it comes right down to it, SS should be a fairly straightforward trust setup. But of course we can't do that.
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NJ is going to go bankrupt, everyone is down on Cristy but he at least has tried to address the issue.
He "tried to address the issue" by making a deal with the teachers to contribute more of their pay in exchange for the state ever actually contributing an amount required by law. Then he didn't make the contributions he said he would, or required by law.
So, I guess he had good intentions? But he utterly failed to live up to his end of the bargain.
Isn't that the fate of all social programs though? Social Security taxes have increased by 620% over the life of the program and STILL are projecting a shortfall. We've dumped over $22 trillion dollars into anti-poverty programs since LBJ's War on Poverty started in 1965 and we have more poverty now than we did before 1965. In fact, the only thing anti-poverty programs did was stop the rapid decline of poverty before 1965. Medicare and Medicaid are responsible for the dramatic rise in healthcare costs per capita since 1965. We just continue to ignore failure after failure because it's politically unpopular to stop distributing other people's money to the poor.
No, not really. Plenty of states have well-funded pension programs that provide more retirement benefits than Social Security at a lower cost to the state than Social Security would be.
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Another fun fact: the ratings agencies all have NJ appropriation debt, the stuff that they have no legal obligation to repay, listed at A-.
Pension funds in general are cheaper than Social Security. The trust fund is invested in government securities, which yield less long term than investments like stocks and corporate bonds. It's basically another way the government can finance itself as the govt used cash based and not accrual accounting.
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Social Security WOULD be fine if they didn't raid it for things that aren't paying Social Security benefits. When it comes right down to it, SS should be a fairly straightforward trust setup. But of course we can't do that.
Social Security would not be fine. It'd still be running a deficit. If Social Security taxes were at 2%, like they were originally, the program would have tanked long ago. The whole reason we continue to raise FICA taxes is because these programs AREN'T fine. They're fundamentally, structurally unsound.
The tax rates are based on projected beneficiaries compared to the number of contributing workers. So as the retiree-to-worker ratio shrinks, we raise taxes on the worker. Workers today are paying FAR HIGHER taxes than current beneficiaries paid. Future workers will pay even higher taxes. This is partially responsible for worker wage stagnation. Even the non-partisan CBO is concerned about the unsustainable growth of Social Security.
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The tax rates are based on projected beneficiaries compared to the number of contributing workers. So as the retiree-to-worker ratio shrinks, we raise taxes on the worker. Workers today are paying FAR HIGHER taxes than current beneficiaries paid. Future workers will pay even higher taxes. This is partially responsible for worker wage stagnation. Even the non-partisan CBO is concerned about the unsustainable growth of Social Security.
For anyone interested, here is a chart that shows the SS/Medicare tax rates over the years:
https://www.ssa.gov/oact/progdata/taxRates.html
That's absurd...
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Everytime I hear an older relative say "but I paid for those benefits!", I'm reminded that most people aren't very good at math.
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Social Security would not be fine. It'd still be running a deficit. If Social Security taxes were at 2%, like they were originally, the program would have tanked long ago. The whole reason we continue to raise FICA taxes is because these programs AREN'T fine. They're fundamentally, structurally unsound.
The thing is, we aren't increasing FICA taxes these days. The last increase was 26 years ago in 1990. From 1960 to 1990 FICA taxes went up at least every five years.
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Social Security would not be fine. It'd still be running a deficit. If Social Security taxes were at 2%, like they were originally, the program would have tanked long ago. The whole reason we continue to raise FICA taxes is because these programs AREN'T fine. They're fundamentally, structurally unsound.
The thing is, we aren't increasing FICA taxes these days. The last increase was 26 years ago in 1990. From 1960 to 1990 FICA taxes went up at least every five years.
I think we're getting to the point where increasing taxes isn't a viable solution anymore. Many people might not realize it, but you start to create poverty and hurt the ability for current workers to save by enforcing high tax rates. In 1993 they made social security payments 85% subject to taxation. In 1994, they eliminated the payroll cap for Medicare taxes. Also, in 2013 the ACA increased medicare taxes by an additional 0.9% on individuals earning over a certain amount.
It's apparently becoming increasingly popular to try and raise the Social Security tax on the wealthy while not increasing their benefits. It's abhorrent that this is even a suggestion as it basically amounts to theft from the rich to line voter's pockets.
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It's apparently becoming increasingly popular to try and raise the Social Security tax on the wealthy while not increasing their benefits. It's abhorrent that this is even a suggestion as it basically amounts to theft from the rich to line voter's pockets.
By this logic, every public service/good equates to theft from the rich.
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It's apparently becoming increasingly popular to try and raise the Social Security tax on the wealthy while not increasing their benefits. It's abhorrent that this is even a suggestion as it basically amounts to theft from the rich to line voter's pockets.
By this logic, every public service/good equates to theft from the rich.
It is. They're not using anywhere near the services they pay for. Many people think using taxes will somehow reduce inequality, but I don't think that's the case at all. Besides I think it's placing too much power in the hands of the rich. The government cares more about the taxpayers than the voters.
http://www.taxpolicycenter.org/UploadedPDF/2000425-would-top-income-tax-alter-income-inequality.pdf (http://www.taxpolicycenter.org/UploadedPDF/2000425-would-top-income-tax-alter-income-inequality.pdf)
http://www.brookings.edu/blogs/brookings-now/posts/2015/10/new-research-shows-raising-the-top-income-tax-rate-wont-reduce-income-inequality (http://www.brookings.edu/blogs/brookings-now/posts/2015/10/new-research-shows-raising-the-top-income-tax-rate-wont-reduce-income-inequality)
https://www.washingtonpost.com/news/wonk/wp/2015/10/12/this-is-the-fastest-way-to-reduce-inequality/ (https://www.washingtonpost.com/news/wonk/wp/2015/10/12/this-is-the-fastest-way-to-reduce-inequality/)
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It's apparently becoming increasingly popular to try and raise the Social Security tax on the wealthy while not increasing their benefits. It's abhorrent that this is even a suggestion as it basically amounts to theft from the rich to line voter's pockets.
By this logic, every public service/good equates to theft from the rich.
It is. They're not using anywhere near the services they pay for. Many people think using taxes will somehow reduce inequality, but I don't think that's the case at all. Besides I think it's placing too much power in the hands of the rich. The government cares more about the taxpayers than the voters.
They're getting to do business in a country with light regulation (compared to say the EU). They get access to a highly educated workforce. They get the benefit of being protected by the world's largest/best military. They get a political system they control.
I'd say the wealthy are getting all kinds of services and benefits for their taxes.
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They're getting to do business in a country with light regulation (compared to say the EU). They get access to a highly educated workforce. They get the benefit of being protected by the world's largest/best military. They get a political system they control.
I'd say the wealthy are getting all kinds of services and benefits for their taxes.
Yeah, 'highly educated'. There's significant evidence out there that in the international market American's aren't 'highly educated'. In fact, globalization has been hurting overpaid, under-performing Americans. We pay the most per capita in K-12 education and are nowhere near the top in education. This is also why corporations and the wealthy have been moving business to overseas to places like China, which I think is fine. Why pay more to employ less educated Americans burdened with high employment costs, taxes, and liabilities?
We need to get away from this idea that the rich somehow 'owe' the public and are 'greedy'. Most American's actually believe that the wealthy only get there by exploiting the worker. It's destructive and only furthers the idea of class warfare instead of addressing real problems faced by the middle class and poor.
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I never said Americans are highly educated because we spend so much on K12 education. I just said they're highly educated. https://en.wikipedia.org/wiki/List_of_countries_by_25-_to_34-year-olds_having_a_tertiary_education_degree
We may not be #1, but we also have the largest population on the list. Giving US based employers access to the largest absolute number of educated workers.
Globalization has hurt uneducated factory type workers the most. It's paid dividends for the wealthiest among us and US corporations.
My OP wasn't meant to start this tangent. I'm just saying that if the richest Americans have to chip in a little more to cover SS without seeing a corresponding increase in benefits, I'm not going to lose any sleep over it.
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Why pay more to employ less educated Americans burdened with high employment costs, taxes, and liabilities?
Because they're so darn cute ?
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I never said Americans are highly educated because we spend so much on K12 education. I just said they're highly educated. https://en.wikipedia.org/wiki/List_of_countries_by_25-_to_34-year-olds_having_a_tertiary_education_degree
We may not be #1, but we also have the largest population out of all of that. Giving US based employers access to the largest absolute number of educated workers.
Globalization has hurt uneducated factory type workers the most. It's paid dividends for the wealthiest among us and US corporations.
My OP wasn't meant to start this tangent. I'm just saying that if the richest Americans have to chip in a little more to cover SS without seeing a corresponding increase in benefits, I'm not going to lose any sleep over it.
I would. I don't think pushing the share of the country's burdens to a single class of people is right or moral. Globalization hasn't helped the wealthy or corporations. Globalization has helped the consumer by providing cheap goods rather than paying for more expensive US-made goods. That's what cost US jobs, global competition. You seem to blame the rich, when the largest barrier to increased productivity is the burdens placed on the business from the government. Blame the government, they're the ones costing us jobs and pushing the poor deeper into poverty.
Our workers need to stay competitive, but no one wants to enact policies that will grow the economy, just slow (or accelerate) the decline by taking more from the productive by catering to populism and not economics.
But you're right, this is Waaaayy off topic. Sorry OP =)
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its ok , i do find it amusing though that a thread on a very technical investment reality that a states pension funds are going bankrupt turns into a battle royale over social security. i guess the way i view it is you have 2 choices, raise taxes to super high levels or figure out a way to cut or contain benefits. i think all these programs are ticking time bombs that will have to have new rules imposed each step of the way to keep them going. in reality, early retirement just keeps looking better and better. old school pensions and long term employment just seem to suck
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NJ, proof that communism doesn't work. People flee NJ to head south to the Carolinas, GA, FL, etc. as soon as they can afford to or at retirement at latest as they cant' afford the $1k/mo rent to the government on their paid off homes. Then the irony is they tend to vote for socialists in the southern states so they can mooch off the productive class and otherwise turn nice freedom loving places into miserable socialist hell holes.
Don't worry though, CA does the same thing on the west coast and are expanding socialist to the southwest as people leave CA. The two most miserable states in country, NJ and CA. Whatever NJ lacks in acreage it makes up for with most of New England being fairly communist as well.
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NJ, proof that communism doesn't work. People flee NJ to head south to the Carolinas, GA, FL, etc. as soon as they can afford to or at retirement at latest as they cant' afford the $1k/mo rent to the government on their paid off homes. Then the irony is they tend to vote for socialists in the southern states so they can mooch off the productive class and otherwise turn nice freedom loving places into miserable socialist hell holes.
Don't worry though, CA does the same thing on the west coast and are expanding socialist to the southwest as people leave CA. The two most miserable states in country, NJ and CA. Whatever NJ lacks in acreage it makes up for with most of New England being fairly communist as well.
I'm not sure you really understand what communism is...