4 ms·

The sad part is that this isn't new - I've been reading about this since about 2006-2007 and I'm sure it was around prior to that. Combo of underfunding pension

The sad part is that this isn't new - I've been reading about this since about 2006-2007 and I'm sure it was around prior to that. Combo of underfunding pensions and then underperforming your model (which was ridiculous to begin with) - just bad news all around. This is going to crush the elderly. Moody's downgrading the cities - oh the irony. Rate junk housing bonds as triple AAA and then do your actual job on the on the city pensions. Agreed with everyone else on the politicians - particularly those on the right - will be quick to seize on this as another supposed example of government freeloaders. I've thought for a long time that we're on the cusp of an inter-generational finance war - with pensioners and retirees demanding what they've been promised, while the funding required has to come from non-retired generations that don't have any strong financial position themselves.

rayiner 11y ago
Cutting benefits to make ends meet won't "crush the elderly." Just reducing pension benefits to the social security rate will save a ton of money: https://www.illinoispolicy.org/reports/fact-finder-pension-benefits-of-chicago-workers/ https://www.illinoispolicy.org/reports/fact-finder-pension-b...
- Amezarak 11y ago
  That article is bizarre. It makes statements like this repeatedly: > Some career city workers even retire in their mid-50s while collecting pension benefits equal to most of their final salary. In contrast, private sector workers cannot begin drawing a full Social Security benefit until nearly a decade later – at the age of 67. Why on Earth would you compare Social Security with public pensions? Of course private sector workers cannot draw Social Security until 67. City workers can't draw Social Security until 67 either. But private sector workers can draw on their pensions (the few that are left) and on 401(k) accounts as early as age 55, too. Both city workers and private sector workers draw on Social Security and their retirement funds, whether those be investment accounts or pensions. Why the strange pretense that public sector pensions are equivalent to private sector retirees collecting Social Security? We're supposed to be outraged at 'excessive' pensions that, at the extreme end, match the salary of the retiree before they retired. But that's exactly where private sector pensions are, and that's exactly what you're supposed to target in your 401(k)/IRA etc. (Of course, the reality is that the vast majority of 401(k) accounts are drastically underfunded, but as this doesn't represent a liability to anyone, nobody cares.) Then you have paragraphs like this: > The amount of money a career city worker contributes to his or her pension has no bearing on what that worker will receive in retirement. ...And the article then goes on to note that a) pension contributions are a percentage of your salary and b) the % of your salary depends on your years of service and c) the pension ultimately pays out your salary every year, assuming (b). So it absolutely does depend on the amount of money a career city worker contributes. Finally, you have this comparison: > Rhea Fries Boldman’s experience as a Chicago Public Schools teacher reveals just how out of sync city worker contributions are compared to the benefits they receive. > Boldman retired in 2012 at the age of 59 with a final average salary of $87,057. > Boldman is receiving an annual pension of $71,674 – and she will receive $2.4 million in pension benefits during her retirement if she lives to her full life expectancy. > Yet she contributed just $147,032 to the pension system over her 30-plus year career. Her direct contributions to the Chicago Teachers’ Pension Fund will cover just 6.2 percent of her expected lifetime benefits. Including the interest earned on those contributions, the total would cover approximately 12 percent of her expected lifetime pension benefits. Hopefully Boldman is earning a lot more than interest in her pension account. If not, that's mismanagement. These numbers aren't drastically different from what you'd see in a 401(k). Were I to retire at 59, my company's 401(k) projection calculator says I'd have contributed 380k and would receive 3.5 million. I expect this is optimistic, but you can still see there is nothing totally ludicrous about those numbers. EDIT: My own back-of-the-hand calculations indicate 'optimistic' is perhaps an understatement. Hm.
  - rayiner 11y ago
    > Why on Earth would you compare Social Security with public pensions Because both are paid for with tax dollars, while private sector pensions and 401(k) accounts are not. Moreover, the public can't be forced to raise taxes to bail out underfunded private sector pensions, while courts are doing just that with public pensions. > We're supposed to be outraged at 'excessive' pensions that, at the extreme end, match the salary of the retiree before they retired. The fact is, that if you were an employee whose private sector employer went bankrupt or you didn't put enough into your 401k, then you're stuck with whatever you get from Social Security. I love paying my taxes, but I don't want to see that money go to giving former public employees a standard of living beyond that enjoyed by those who worked for private employers that failed.
    - Amezarak 11y ago
      > Because both are paid for with tax dollars, while private sector pensions and 401(k) accounts are not. Moreover, the public can't be forced to raise taxes to bail out underfunded private sector pensions, while courts are doing just that with public pensions. Both private sector and public sector employees receive Social Security benefits. It makes no sense to pretend that Social Security benefits are exclusive to private sector employees. The article makes it seem as though only public sector employees can retire at 59 and expect to get anything, while hardworking private sector employees must wait until 67. This is certainly not the case. Private sector employees are (sometimes) offered pensions and (almost always) offered 401(k)s, both of which allow for early retirement. > I'm outraged because I'm paying for it with tax dollars. I love paying my taxes, but now that we're at the point where a dollar that goes to pensioners is a dollar that doesn't go to schools and infrastructure, it's definitely legitimate to question how comfortable a living we want to provide to public employees at taxpayer expense. We should pay them every dollar we owe them. It isn't their problem if they paid in every year and the government did not meet its obligations. If you must, cut off pensions for new employees. Don't change the rules on the old ones. As for 'taxpayer expense', you may be interested in this: https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo... If too many private pensions start failing, taxpayers may still be on the hook.
- inthewoods 11y ago
  I'm not sure how you can claim it won't crush the elderly - if you were expecting and planning around having $65k a year in retirement as part of your total income, and now you've got $20k, that is an enormous change. And that is what I fear is coming in this situation. We can argue about what the correct public policy is to correct the problem - any number of solutions exist. Governments have failed to make the required changes - but they have also consistently failed to pay in the funds (this isn't limited to States - companies have done this as well). None of the solutions will likely include keeping benefits for retirees where they currently exist. The States seem to be playing a game of chicken - waiting until it is a crisis because they know, politically, discussing changes to the pension system for those currently in it or about to enter it is effectively political suicide.
a3n 11y ago
> This is going to crush the elderly. Who will be labled as "takers," when all they did was what was agreed.
jbooth 11y ago
It's the politicians' fault, and I used to be one negotiating one of these agreements. Here's how it works: Town's short on money. Revenue is up 2% and a fair cost of living raise is more like 3%, let alone the fact that health insurance has been going up by >10% every year for the last 15 years. How do we balance it? The unions are pros at this, some local politician is in there for a couple terms at most while the unions are playing a game measured in decades. Well, we could balance it with some deferred pension benefits in exchange for a 1% COL raise this year, right? That make everyone happy? Fast forward a couple decades and here we are.
- inthewoods 11y ago
  Totally agree. Failure to reform the system is part 1. Part 2 is underfunding it and then making ridiculous assumptions on returns. How do we balance it? We balance it the way we tend to do things in this country - we wait until the system is on the verge of collapse and then the pensioners will either get their benefits cut, or taxes will be raised. Outcome will likely depend on the makeup of a given State or system. How long before one of the States with a good system starts advertising for young people to move there to avoid the problem?

rayiner 11y ago

Cutting benefits to make ends meet won't "crush the elderly." Just reducing pension benefits to the social security rate will save a ton of money: https://www.illinoispolicy.org/reports/fact-finder-pension-benefits-of-chicago-workers/ https://www.illinoispolicy.org/reports/fact-finder-pension-b...

Amezarak 11y ago
That article is bizarre. It makes statements like this repeatedly: > Some career city workers even retire in their mid-50s while collecting pension benefits equal to most of their final salary. In contrast, private sector workers cannot begin drawing a full Social Security benefit until nearly a decade later – at the age of 67. Why on Earth would you compare Social Security with public pensions? Of course private sector workers cannot draw Social Security until 67. City workers can't draw Social Security until 67 either. But private sector workers can draw on their pensions (the few that are left) and on 401(k) accounts as early as age 55, too. Both city workers and private sector workers draw on Social Security and their retirement funds, whether those be investment accounts or pensions. Why the strange pretense that public sector pensions are equivalent to private sector retirees collecting Social Security? We're supposed to be outraged at 'excessive' pensions that, at the extreme end, match the salary of the retiree before they retired. But that's exactly where private sector pensions are, and that's exactly what you're supposed to target in your 401(k)/IRA etc. (Of course, the reality is that the vast majority of 401(k) accounts are drastically underfunded, but as this doesn't represent a liability to anyone, nobody cares.) Then you have paragraphs like this: > The amount of money a career city worker contributes to his or her pension has no bearing on what that worker will receive in retirement. ...And the article then goes on to note that a) pension contributions are a percentage of your salary and b) the % of your salary depends on your years of service and c) the pension ultimately pays out your salary every year, assuming (b). So it absolutely does depend on the amount of money a career city worker contributes. Finally, you have this comparison: > Rhea Fries Boldman’s experience as a Chicago Public Schools teacher reveals just how out of sync city worker contributions are compared to the benefits they receive. > Boldman retired in 2012 at the age of 59 with a final average salary of $87,057. > Boldman is receiving an annual pension of $71,674 – and she will receive $2.4 million in pension benefits during her retirement if she lives to her full life expectancy. > Yet she contributed just $147,032 to the pension system over her 30-plus year career. Her direct contributions to the Chicago Teachers’ Pension Fund will cover just 6.2 percent of her expected lifetime benefits. Including the interest earned on those contributions, the total would cover approximately 12 percent of her expected lifetime pension benefits. Hopefully Boldman is earning a lot more than interest in her pension account. If not, that's mismanagement. These numbers aren't drastically different from what you'd see in a 401(k). Were I to retire at 59, my company's 401(k) projection calculator says I'd have contributed 380k and would receive 3.5 million. I expect this is optimistic, but you can still see there is nothing totally ludicrous about those numbers. EDIT: My own back-of-the-hand calculations indicate 'optimistic' is perhaps an understatement. Hm.
- rayiner 11y ago
  > Why on Earth would you compare Social Security with public pensions Because both are paid for with tax dollars, while private sector pensions and 401(k) accounts are not. Moreover, the public can't be forced to raise taxes to bail out underfunded private sector pensions, while courts are doing just that with public pensions. > We're supposed to be outraged at 'excessive' pensions that, at the extreme end, match the salary of the retiree before they retired. The fact is, that if you were an employee whose private sector employer went bankrupt or you didn't put enough into your 401k, then you're stuck with whatever you get from Social Security. I love paying my taxes, but I don't want to see that money go to giving former public employees a standard of living beyond that enjoyed by those who worked for private employers that failed.
  - Amezarak 11y ago
    > Because both are paid for with tax dollars, while private sector pensions and 401(k) accounts are not. Moreover, the public can't be forced to raise taxes to bail out underfunded private sector pensions, while courts are doing just that with public pensions. Both private sector and public sector employees receive Social Security benefits. It makes no sense to pretend that Social Security benefits are exclusive to private sector employees. The article makes it seem as though only public sector employees can retire at 59 and expect to get anything, while hardworking private sector employees must wait until 67. This is certainly not the case. Private sector employees are (sometimes) offered pensions and (almost always) offered 401(k)s, both of which allow for early retirement. > I'm outraged because I'm paying for it with tax dollars. I love paying my taxes, but now that we're at the point where a dollar that goes to pensioners is a dollar that doesn't go to schools and infrastructure, it's definitely legitimate to question how comfortable a living we want to provide to public employees at taxpayer expense. We should pay them every dollar we owe them. It isn't their problem if they paid in every year and the government did not meet its obligations. If you must, cut off pensions for new employees. Don't change the rules on the old ones. As for 'taxpayer expense', you may be interested in this: https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo... If too many private pensions start failing, taxpayers may still be on the hook.
inthewoods 11y ago
I'm not sure how you can claim it won't crush the elderly - if you were expecting and planning around having $65k a year in retirement as part of your total income, and now you've got $20k, that is an enormous change. And that is what I fear is coming in this situation. We can argue about what the correct public policy is to correct the problem - any number of solutions exist. Governments have failed to make the required changes - but they have also consistently failed to pay in the funds (this isn't limited to States - companies have done this as well). None of the solutions will likely include keeping benefits for retirees where they currently exist. The States seem to be playing a game of chicken - waiting until it is a crisis because they know, politically, discussing changes to the pension system for those currently in it or about to enter it is effectively political suicide.

a3n 11y ago

> This is going to crush the elderly. Who will be labled as "takers," when all they did was what was agreed.

jbooth 11y ago

It's the politicians' fault, and I used to be one negotiating one of these agreements. Here's how it works: Town's short on money. Revenue is up 2% and a fair cost of living raise is more like 3%, let alone the fact that health insurance has been going up by >10% every year for the last 15 years. How do we balance it? The unions are pros at this, some local politician is in there for a couple terms at most while the unions are playing a game measured in decades. Well, we could balance it with some deferred pension benefits in exchange for a 1% COL raise this year, right? That make everyone happy? Fast forward a couple decades and here we are.

inthewoods 11y ago
Totally agree. Failure to reform the system is part 1. Part 2 is underfunding it and then making ridiculous assumptions on returns. How do we balance it? We balance it the way we tend to do things in this country - we wait until the system is on the verge of collapse and then the pensioners will either get their benefits cut, or taxes will be raised. Outcome will likely depend on the makeup of a given State or system. How long before one of the States with a good system starts advertising for young people to move there to avoid the problem?