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Pensions (are they safe?)

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  • #16
    .

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    • #17
      I came to conclusion that university pensions are not safe. Although official publications write things in a manner that doesn't explain the true situation of the pension fund, essentially making people think that things are going well.

      STRS Ohio (pension system for Ohio university employees(this includes physicians at universities)) had the following changes since 2012:

      --started a 5yr vesting period for new employees (before was 1yr vesting)
      --increased employee mandatory contribution to 14% of paycheck (up from 10%, and of course employer contributing less now at 6%)
      --adjusted formula for pension calculation (making the pension lower than prior calculations)

      Most Importantly
      plan continued to underperform (surprise surprise) and ongoing mounting liabilities (surprise surprise)
      --Eliminated cost of living adjustment starting July 1, 2017 (this is a huge deal, since state teachers don't have Social Security (they are exempt from contributing)
      --in 2014 stopped contributing to the healthcare fund (directing money to general retirement fund), essentially healthcare coverage won't be around in 10yrs (as the high healthcare costs of the many retirees will drain the fund).

       

      Essentially now its not clear why the pension is around. You don't get social security, healthcare will likely not exist, there is no more COLA. What is sad is some people stuck around their academic medical jobs due to the pension. They need to go to traditional 401k plan and have people contributed to social security.

      Pension systems are doing poorly even with the growth we had for past 10 years. I think pension systems won't survive another market downturn.

      "STRS Ohio Eliminates COLA


      At the end of April this year, trustees for the State Teachers Retirement System (STRS) of Ohio voted to eliminate cost-of-living adjustments (COLA) beginning July 1, 2017. This change is expected to impact over 490,000 teachers and retirees statewide, who had previously been receiving 2% annual increases in their pension income."
      http://www.buckinghamfinancial.com/News/2017/06/FinancialPlan.htm
      http://wksu.org/post/strs-pension-board-votes-eliminate-cost-living-increases-ohio-teachers#stream/0

      "The board discontinued the allocation of a portion of employer contributions to the health care fund in July 2014 because the full employer contribution was needed to help improve the financial condition of the pension fund. The portion that was previously allocated was 1% of employer payroll."
      https://www.strsoh.org/publications/newsletters/retirees/health-care.html
      --their math is also funny, they say the healthcare fund has balance of $3.22 billion. But in 2016 healthcare fund cost was $677 million. And they estimate that the fund will have money for next 18 years???

      --There is also monkey business going on with their website. They got rid of newsletters for previous months/years. You can't find newsletters talking about eliminating COLA (official STRS newsletter).

      The other big public fund (ohio public employee retirement system OPERS) is also considering altering its COLA.

      OPERS considering changes to COLA (https://www.strsoh.org/publications/newsletters/legislative.html)


       

      Why the fund is going bankrupt is in their own figures.

      STRS Ohio Membership Facts and Figures


      Each year, STRS Ohio works with its actuarial consultant on a valuation report that is a “snapshot” of the system at the end of the fiscal year. Here are a few facts about STRS Ohio’s membership (as of July 1, 2016) from this year’s actuary file:

      • Active members — 169,212

      • Benefit recipients — 157,938

      • 171 recipients are age 100 or older (155 female, 16 male)

      • STRS Ohio’s oldest retiree is 106 years old

      • Longest-paid service retiree retired in 1969

      • 13 active members have 50 or more years of service

      • K–12 member with the most service credit — 56.8 years of service

      • Higher education member with the most service credit — 58.1 years of service


      Contributions & Benefits



      • $2.9 billion — member and employer contributions in fiscal year 2016

      • $7.8 billion — benefits paid (including health care) in fiscal year 2016


      https://www.strsoh.org/publications/newsletters/actives/news.html#story-4

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      • #18
        Stick with the 6% match and not the traditional pension. Do you think you guys will realistically keep that same job for 20 years?

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        • #19







          Five years of civilian service with the VA or as a GS employee with DoD would let you buy back your 8 years with the military for 3% of base pay (not including BAH, BAS, incentive and special pays, etc.).  While I wouldn’t base my entire medical career on that incentive, it might be worthwhile for your last five years working in your 50s in a city where you want to retire.

          I’d place a fair degree of confidence in a federal pension, especially for the active duty military.  A promise of a pension from Puerto Rico or the state of Illinois, not so much.
          Click to expand…


          Why not illinois?  Pension has survived multiple challenges as protection written into state constitution.

          Just curious if there is more to it than state is broke so probably can’t meet obligations.
          Click to expand...


          The fact that the Illinois State Supreme Court has protected the diminishment of public pensions is a legal protection not an economic protection.  Though the state has the nation's fifth highest GDP of 692.5 Billion, it has 203 Billion (state and all sub-governmental units) of unfunded pension liabilities and growing substantially.  The state continues to struggle with higher unemployment and is one of the few states with a falling population, not a recipe for long-term health.  The scary thing is the population outflow appears to be concentrated in Chicago's south and west sides, areas with lower economic opportunity.  Lastly, its tax burden is one of the highest in the nation at almost 15%, so additional taxation will accelerate the population/unemployment issues.

          The state and municipalities have attempted a variety fees to protect services/ and fund pensions (see cook county 'soda tax').  The politicians are quickly running out of financial room and population willing to pay for past poor choices.   Geography is also an issue, given Chicago is the source of most non-farm GDP, its proximity to Wisconsin and Indiana make those viable alternatives given the tax burden let along incremental taxation.

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          • #20










            Five years of civilian service with the VA or as a GS employee with DoD would let you buy back your 8 years with the military for 3% of base pay (not including BAH, BAS, incentive and special pays, etc.).  While I wouldn’t base my entire medical career on that incentive, it might be worthwhile for your last five years working in your 50s in a city where you want to retire.

            I’d place a fair degree of confidence in a federal pension, especially for the active duty military.  A promise of a pension from Puerto Rico or the state of Illinois, not so much.
            Click to expand…


            Why not illinois?  Pension has survived multiple challenges as protection written into state constitution.

            Just curious if there is more to it than state is broke so probably can’t meet obligations.
            Click to expand…


            The fact that the Illinois State Supreme Court has protected the diminishment of public pensions is a legal protection not an economic protection.  Though the state has the nation’s fifth highest GDP of 692.5 Billion, it has 203 Billion (state and all sub-governmental units) of unfunded pension liabilities and growing substantially.  The state continues to struggle with higher unemployment and is one of the few states with a falling population, not a recipe for long-term health.  The scary thing is the population outflow appears to be concentrated in Chicago’s south and west sides, areas with lower economic opportunity.  Lastly, its tax burden is one of the highest in the nation at almost 15%, so additional taxation will accelerate the population/unemployment issues.

            The state and municipalities have attempted a variety fees to protect services/ and fund pensions (see cook county ‘soda tax’).  The politicians are quickly running out of financial room and population willing to pay for past poor choices.   Geography is also an issue, given Chicago is the source of most non-farm GDP, its proximity to Wisconsin and Indiana make those viable alternatives given the tax burden let along incremental taxation.
            Click to expand...


            Agree that the mathematics are impossible.  I think it's more likely that cuts and closures will occur before pension reform.  Already they are years behind in payments.  Schools and programs appear to be suffering.  Likely imo that pension compromises will be forward looking than backwards.  I could be wrong however.

            Ive never known of a state to bankrupt but admittedly not an expert.

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            • #22
              I read a part of the ruling and though not a lawyer like the author, the pension issue is a 'canary in the coal mine' for other Illinois municipalities.

              I have no doubt that Robbins will appeal the ruling to the Illinois Supreme Court.  Robbins will lose, as in my opinion the town's largest error was in ignoring a prior 1996 settlement agreement with the firefighter's pension.  The overarching issue mentioned by the author; a. Robbins is a corrupt/fiscal basket case (IMO an understatement), b. can squeeze blood out of turnip (Robbins is the turnip) I agree with.

              The interesting part of the ruling in my opinion is how the Illinois Supreme Court will approach the ruling in two areas; a. a mandated tax increase to fund the firefighter pension and b. What guideposts would potentially be used by the court to determine pension 'insolvency' along with a municipal capacity to pay the pension.  For A., given the existing tax burden and overriding the customary tax raising mechanism (approved by city council, debt issuance supported by voters), I don't find it appealing for the court to be imposing a potential tax increase, though clearly the city administrators are not capable of fiscal discipline. For B., it will be a challenge for the Illinois State Supreme court to create a 'test' that does not catch/include alot of other municipalities in Illinois with a ruling that supports A. above.

              Does an individual or business hang around a weak municipality for the resulting combination of tax increases and service cuts over 30 odd years to make things right?

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              • #23
                New math deals Minnesota's pensions the biggest hit in the U.S.

                "Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg."

                http://www.msn.com/en-us/money/markets/new-math-deals-minnesotas-pensions-the-biggest-hit-in-the-us/ar-AAr1qZ3?li=BBnbfcL

                 

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                • #24




                  New math deals Minnesota’s pensions the biggest hit in the U.S.

                  “Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.”

                  http://www.msn.com/en-us/money/markets/new-math-deals-minnesotas-pensions-the-biggest-hit-in-the-us/ar-AAr1qZ3?li=BBnbfcL

                   
                  Click to expand...


                  The real issue is every state knows its not funded well but uses funny assumptions to make things look better on paper, kicking the can for the reckoning to someone in the future.

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                  • #25
                    So they said with the Euro's rise 15 years ago.

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                    • #26
                      Little mention of the value of COLA, which (along with starting at any age, usually >45 for docs) makes the military pension much more valuable especially for primary care specialties. However this feature makes it so much more expensive to a state or company that any that still offer it will probably stop doing so ASAP, perhaps altering their promise to anyone counting on it, or have a higher risk of defaulting.

                      In fact when I value my partner's pension in our wealth I don't even know how to. It isn't just $X = (monthly payment x 12)/interest rate , it's $X goes to $0 when we both die, increases with inflation, and goes to 55% when my partner dies or 105% when I die.

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                      • #27




                        Little mention of the value of COLA, which (along with starting at any age, usually >45 for docs) makes the military pension much more valuable especially for primary care specialties. However this feature makes it so much more expensive to a state or company that any that still offer it will probably stop doing so ASAP, perhaps altering their promise to anyone counting on it, or have a higher risk of defaulting.

                        In fact when I value my partner’s pension in our wealth I don’t even know how to. It isn’t just $X = (monthly payment x 12)/interest rate , it’s $X goes to $0 when we both die, increases with inflation, and goes to 55% when my partner dies or 105% when I die.
                        Click to expand...


                        we always struggle with pension value and social security as well, for that matter.

                        it's easy to say pretend they don't exist, but hard to plan if you ignore many thousands of dollars a month of retirement income.

                        well, still better to have a pension, than not.  

                         

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                        • #28
                          I am vested in an Illinois pension from training days.  Should be about 20k/yr for myself at 62  + cola + health insurance which is discounted + 100% benefits for partner if I pass.  How much can I expect to see of this is anyone's guess.

                          I also have a balance of about 90k right now which grows at about 6.5%/yr and have the option of rolling over to IRA at any point but then lose future pension benefits. Sometimes I think about doing this given the state of affairs, but feel there is a chance I'll see my benefits given strong constitutional protections and reduced benefits for new workers.  What would you guys do?

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                          • #29
                            future hard to predict.

                            on one hand, illinois is as broke ****************** a state as there is.

                            otoh, they are as crooked as there is and plenty of skin in game for legislators, and other powerful unions.

                            in my opinion, hard to do something significant to pensions of people enrolled in the 80s.   may be able to nibble at edges of cola or survivors benefits possibly and transform from state tax free pension to survivor annuity, which is taxable.  may be able to reduce health care benefits.  certainly will be forced to reduce costs somehow from basic mathematics.

                            ymmv

                            jmo

                             

                             

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                            • #30
                              California has been revising their pension plans every few years since the great recession and each time been moving higher retirement dates and options like a employer funded 401k in lieu of the traditional pensions which a lot of the millennials are taking with the five vesting such a high bar for them these days.....all this is balancing out the obligation load in just a few years in place.

                              If Cali is doing it in labor friendly state, others can emulate if they don't want to default

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