Defined Benefit Pension Plans for Public Employees

MaggieD · Dec 22, 2012

I would like to see public sector Defined Benefit Pension Plans made illegal. They are unsustainable. Here's how they work:

"We promise you X% of your salary when you retire." To accomplish this, an actuary inputs a rate of return on the collected funds and determines, on an annual basis, how the fund's assets need to be adjusted in light of actually-realized returns. Taxpayers make up the difference. It makes no difference to the participant how well or poorly his pension fund invests, since the taxpayer must make up the difference to accomplish that "X%."

There are very few Defined Benefit Pension Plans in the private sector. Most private sector pensions are based Defined Contribution Pension Plans. Meaning that the employee and employer contribute a fixed amount into the employees' accounts, the funds are invested, and the employee collects based on the value of the fund at retirement.

Your thoughts?

UtahBill · Dec 22, 2012

No employer sponsored or controlled plans at all.....they pay you a salary, and you invest it as you will.
Likewise health care plans...
If you find a better job, you take it, no worries about what you might be losing in the way of benefits.

That is how it was a long time ago, and it worked quite well....

Harry Guerrilla · Dec 22, 2012

MaggieD said:
I would like to see public sector Defined Benefit Pension Plans made illegal. They are unsustainable. Here's how they work:

"We promise you X% of your salary when you retire." To accomplish this, an actuary inputs a rate of return on the collected funds and determines, on an annual basis, how the fund's assets need to be adjusted in light of actually-realized returns. Taxpayers make up the difference. It makes no difference to the participant how well or poorly his pension fund invests, since the taxpayer must make up the difference to accomplish that "X%."

There are very few Defined Benefit Pension Plans in the private sector. Most private sector pensions are based Defined Contribution Pension Plans. Meaning that the employee and employer contribute a fixed amount into the employees' accounts, the funds are invested, and the employee collects based on the value of the fund at retirement.

Your thoughts?

I agree, with an exception.

The public sector used to be about lower pay, but better benefits.
As long as the pay and benefits are in line, with the most comparable private sector job, I'm cool with it.

ttwtt78640 · Dec 22, 2012

MaggieD said:
I would like to see public sector Defined Benefit Pension Plans made illegal. They are unsustainable. Here's how they work:

"We promise you X% of your salary when you retire." To accomplish this, an actuary inputs a rate of return on the collected funds and determines, on an annual basis, how the fund's assets need to be adjusted in light of actually-realized returns. Taxpayers make up the difference. It makes no difference to the participant how well or poorly his pension fund invests, since the taxpayer must make up the difference to accomplish that "X%."

There are very few Defined Benefit Pension Plans in the private sector. Most private sector pensions are based Defined Contribution Pension Plans. Meaning that the employee and employer contribute a fixed amount into the employees' accounts, the funds are invested, and the employee collects based on the value of the fund at retirement.

Your thoughts?

Not only are the benefits defined, they are inflation adjusted, making the "projected" costs rise well above any reasonable return on investment is likely to. Another foolish tradition of gov't pensions is that they start long before a resonable retirement age is reached; I propose no public "retirement" pension benefits be paid prior to the time that SS/SSI benefits are qualified for. Private pensions, even IRA, Keogh and 401Ks may not be taken (tax penalty free) before age 59 1/2, yet many "retire" from gov't jobs at ages far below that. My father retired from the Army at age 43 (22 years of service) and then again from NSA (civil service) at age 53 (9 years of service, but effectively 31 years of service, since his militray time was counted). He now, at age 90, makes more than he ever did working, due to COLA adjustments, and has been retired for more years than he ever worked. USA, USA, USA...

Dittohead not! · Dec 22, 2012

Harry Guerrilla said:
I agree, with an exception.

The public sector used to be about lower pay, but better benefits.
As long as the pay and benefits are in line, with the most comparable private sector job, I'm cool with it.

Yes, that's how it used to be.
Now, private sector salaries have declined to the point that public sector pay is looking pretty good, even if those salaries have declined as well.

Moreover, baby boomers are adding to the retirees, life expectancy is increasing, and we have a fiscal problem.

Zalatix · Dec 22, 2012

UtahBill said:
No employer sponsored or controlled plans at all.....they pay you a salary, and you invest it as you will.
Likewise health care plans...
If you find a better job, you take it, no worries about what you might be losing in the way of benefits.

That is how it was a long time ago, and it worked quite well....

Uh, no it didn't.

CalGun · Dec 22, 2012

It is worse than this in CA particularly in our schools. This is an extreme example but it's how my friend a teacher told it to me:

A teacher makes $60,000 a year (just an example) and for 20 years of service might get 60% of that in retirement guaranteed. Fair enough right? The school district puts enough money aside every year to produce $36k for his perceived life span. You are right maggie in that any shortcomings in investments must be made up, the $36k is assured / defined. But wait.....

At year 17 the soon to retire teacher tells an insider of his plans, and is promoted to an assistant principle or academic director or other administrative job for $90,000. The next year they get step and cola increases to $100k, and finally $110k in their last year. 3 years of adm service.

The defined benefit at 20 years is 60% of their last 3 years (some its just 2). This retiree now enjoys $60,000 a year for life from an institution that set aside enough to pay $36k. Guess who picks up the difference? This happens in law enforcement, city governments, public works, and education. Imagine it at 25,000 cases a year. Now you can see why this scam doesn't work.

MaggieD said:
I would like to see public sector Defined Benefit Pension Plans made illegal. They are unsustainable. Here's how they work:

"We promise you X% of your salary when you retire." To accomplish this, an actuary inputs a rate of return on the collected funds and determines, on an annual basis, how the fund's assets need to be adjusted in light of actually-realized returns. Taxpayers make up the difference. It makes no difference to the participant how well or poorly his pension fund invests, since the taxpayer must make up the difference to accomplish that "X%."

There are very few Defined Benefit Pension Plans in the private sector. Most private sector pensions are based Defined Contribution Pension Plans. Meaning that the employee and employer contribute a fixed amount into the employees' accounts, the funds are invested, and the employee collects based on the value of the fund at retirement.

Your thoughts?

haymarket · Dec 22, 2012

MaggieD said:
I would like to see public sector Defined Benefit Pension Plans made illegal. They are unsustainable. Here's how they work:

"We promise you X% of your salary when you retire." To accomplish this, an actuary inputs a rate of return on the collected funds and determines, on an annual basis, how the fund's assets need to be adjusted in light of actually-realized returns. Taxpayers make up the difference. It makes no difference to the participant how well or poorly his pension fund invests, since the taxpayer must make up the difference to accomplish that "X%."

There are very few Defined Benefit Pension Plans in the private sector. Most private sector pensions are based Defined Contribution Pension Plans. Meaning that the employee and employer contribute a fixed amount into the employees' accounts, the funds are invested, and the employee collects based on the value of the fund at retirement.

Your thoughts?

And how would this effect people already retired?

And how would this effect current employees hired under these plans?

MaggieD · Dec 22, 2012

haymarket said:
And how would this effect people already retired?

And how would this effect current employees hired under these plans?

At the end of the contract period, these employees would receive a payout representing their vested interest in the pension fund. It'd be a pretty penny. Then we could start over with sanity.

justabubba · Dec 22, 2012

MaggieD said:
I would like to see public sector Defined Benefit Pension Plans made illegal. They are unsustainable. Here's how they work:

"We promise you X% of your salary when you retire." To accomplish this, an actuary inputs a rate of return on the collected funds and determines, on an annual basis, how the fund's assets need to be adjusted in light of actually-realized returns. Taxpayers make up the difference. It makes no difference to the participant how well or poorly his pension fund invests, since the taxpayer must make up the difference to accomplish that "X%."

There are very few Defined Benefit Pension Plans in the private sector. Most private sector pensions are based Defined Contribution Pension Plans. Meaning that the employee and employer contribute a fixed amount into the employees' accounts, the funds are invested, and the employee collects based on the value of the fund at retirement.

Your thoughts?

the federal civil service retirement program recognized the truths you post about two decades ago and went from CSRS to FERS
amazes me that state and local governments cannot see the unsustainable handwriting on the wall
but rather than making them illegal, i would maintain that no defined benefit program can be covered by the federal pension benefit guaranty program. then let the employees roll the dice, whether to keep or modify their plan, recognizing if they choose the wrong option and their employer's financial circumstance tanks, their prospects for retirement earnings will have tanked, too

Dittohead not! · Dec 22, 2012

CalGun said:
It is worse than this in CA particularly in our schools. This is an extreme example but it's how my friend a teacher told it to me:

A teacher makes $60,000 a year (just an example) and for 20 years of service might get 60% of that in retirement guaranteed. Fair enough right? The school district puts enough money aside every year to produce $36k for his perceived life span. You are right maggie in that any shortcomings in investments must be made up, the $36k is assured / defined. But wait.....

At year 17 the soon to retire teacher tells an insider of his plans, and is promoted to an assistant principle or academic director or other administrative job for $90,000. The next year they get step and cola increases to $100k, and finally $110k in their last year. 3 years of adm service.

The defined benefit at 20 years is 60% of their last 3 years (some its just 2). This retiree now enjoys $60,000 a year for life from an institution that set aside enough to pay $36k. Guess who picks up the difference? This happens in law enforcement, city governments, public works, and education. Imagine it at 25,000 cases a year. Now you can see why this scam doesn't work.

I don't know how it i where you are, but the California State Teacher's Retirement figured out that scam a long time ago.

MaggieD · Dec 22, 2012

justabubba said:
the federal civil service retirement program recognized the truths you post about two decades ago and went from CSRS to FERS
amazes me that state and local governments cannot see the unsustainable handwriting on the wall
but rather than making them illegal, i would maintain that no defined benefit program can be covered by the federal pension benefit guaranty program. then let the employees roll the dice, whether to keep or modify their plan, recognizing if they choose the wrong option and their employer's financial circumstance tanks, their prospects for retirement earnings will have tanked, too

No public pension has ever gone insolvent without the governmental entity declaring bankruptcy. That's really not the answer, although I understand what you're saying. Many state constitutions (Illinois being one of them) apparently guarantee these benefits in perpetuity. And as long as the state has the power to tax? They will never be declared insolvent.

haymarket · Dec 22, 2012

MaggieD said:
At the end of the contract period, these employees would receive a payout representing their vested interest in the pension fund. It'd be a pretty penny. Then we could start over with sanity.

Thank you. So that would be for people still working.

And for those already retired who fulfilled the conditions of their contracts that they worked under they would keep their current plans and benefits?

MaggieD · Dec 22, 2012

haymarket said:
Thank you. So that would be for people still working.

And for those already retired who fulfilled the conditions of their contracts that they worked under they would keep their current plans and benefits?

If it were legal to buy them out, I would support buying them out. Perhaps it wouldn't be, however.

If it wasn't legal to automatically buy them out, and I could legally do so, I would give them a choice. Some retirees might get well over a million dollars. Even more. I would imagine quite a few of them would take advantage of that. And be quite happy at that.

CalGun · Dec 22, 2012

And what have they done about it? To my knowledge it goes on today.

Dittohead not! said:
I don't know how it i where you are, but the California State Teacher's Retirement figured out that scam a long time ago.

CalGun · Dec 22, 2012

I'd got slightly different,

Step one: No more, beginning immediately all existing employees get a 401k/403b whatever payment and are resonsible for their
future retirement - good luck.

Step two: Existing employees will get a 401k/403b deposit equal to 1/5th of their existing retirement "savings" each year for 5
years so they don't lose out on what has already been "saved" for them.

Step three: Existing retirees over 70 I don't think you can change - we have to make good on their contracts, but those
under 70 will receive 1/5th of their plans benefit each year for 5 years which can be taken tax free and put into an IRA
or kept out if they like; after the 5th payment they are on their own.

MaggieD said:
At the end of the contract period, these employees would receive a payout representing their vested interest in the pension fund. It'd be a pretty penny. Then we could start over with sanity.

UtahBill · Dec 22, 2012

Zalatix said:
Uh, no it didn't.

before WWII, the companies offering such benefits were few and far between....
it takes a national disaster to make things difficult for many, like the dust bowl, the great depression, etc. THEN is when govt should step in....but to be offering a nanny state environment to everyone all the time is counter productive in the long run...

Helix · Dec 22, 2012

MaggieD said:
At the end of the contract period, these employees would receive a payout representing their vested interest in the pension fund. It'd be a pretty penny. Then we could start over with sanity.

if you're talking about ending the pension system for new hires, i'm not a fan of it, but i also understand what "unsustainable" means. however, for those who have worked in the system already, that was part of their salary. i can't support denying them what they were promised for their whole careers. that would be like docking pay retroactively.

MaggieD · Dec 22, 2012

Helix said:
if you're talking about ending the pension system for new hires, i'm not a fan of it, but i also understand what "unsustainable" means. however, for those who have worked in the system already, that was part of their salary. i can't support denying them what they were promised for their whole careers. that would be like docking pay retroactively.

No, it would not. They would be given a pay-out equal to their vested interest.

Helix · Dec 22, 2012

MaggieD said:
No, it would not. They would be given a pay-out equal to their vested interest.

but that wasn't the deal. most took a lower salary than they would have earned in the private sector, and back then, even the private sector jobs had pensions. it would be the equivalent of giving you a fraction of your 401k, or sending you a bill for years of salary that you already collected because the company is now in trouble.

MaggieD · Dec 22, 2012

Helix said:
but that wasn't the deal. most took a lower salary than they would have earned in the private sector, and back then, even the private sector jobs had pensions. it would be the equivalent of giving you a fraction of your 401k, or sending you a bill for years of salary that you already collected because the company is now in trouble.

You don't understand what "vested interest" means. Someone's vested interest is every single penny he's entitled to up to that very minute in time.

Helix · Dec 22, 2012

MaggieD said:
You don't understand what "vested interest" means. Someone's vested interest is every single penny he's entitled to up to that very minute in time.

probably some kind of phase-out is doable in theory. legally, it would be fairly contentious.

MaggieD · Dec 22, 2012

Helix said:
probably some kind of phase-out is doable in theory. legally, it would be fairly contentious.

The contentious part would be changing from a defined benefit to a defined contribution plan -- like almost everyone else has.

justabubba · Dec 22, 2012

Helix said:
if you're talking about ending the pension system for new hires, i'm not a fan of it, but i also understand what "unsustainable" means. however, for those who have worked in the system already, that was part of their salary. i can't support denying them what they were promised for their whole careers. that would be like docking pay retroactively.

when the fed finally acknowledged the civilian retirement system was not financially sustainable, they offered existing employees the option to convert from the defined pension plan to the FERS plan, which provided a diminishing match of the employees' contributions as the percentage deposited increased
a (stupid) few accepted the option
most of us retained our defined benefit plans

it really does make a difference in the quality of applicants received
and it is obvious from the talent that leaves, no longer inclined to stick around to earn and enjoy the sweet retirement deal
that the FERS retirement benefit has reduced the quality of the federal workforce
not saying it is not still of high quality, because it is, but it is not the cream of the crop it was when the CSRS benefit was available
if the military makes a similar move, i expect a similar outcome

and that is the only reason i can fathom as the reason that the states and local governments are not now moving away from defined benefit retirement packages

Defined Benefit Pension Plans for Public Employees

MaggieD

UtahBill

Harry Guerrilla

ttwtt78640

Sometimes wrong

Dittohead not!

master political analyst

Zalatix

CalGun

haymarket

MaggieD

justabubba

long standing member

Dittohead not!

master political analyst

MaggieD

haymarket

MaggieD

CalGun

CalGun

UtahBill

Helix

MaggieD

Helix

MaggieD

Helix

MaggieD

justabubba

long standing member

Defined Benefit Pension Plans for Public Employees

Sometimes wrong

master political analyst

long standing member

master political analyst

long standing member

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