Yahoo Finance: Battle Looms Over Huge Costs of Public Pensions

[killerbee99]

http://finance.yahoo.com/news/Battle-Looms-Over-Huge-Costs-nytimes-252868470.html?x=0&mod=pf-retirement#mwpphu-container

There’s a class war coming to the world of government pensions.

The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.

The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.

At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.

The figure comes from a study by the Pew Center on the States that came out in February. Pew estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some ecomists say that Pew is too conservative and the problem is two or three times as large.

So a question of extraordinary financial, political, legal and moral complexity emerges, something that every one of us will be taking into town meetings and voting booths for years to come: Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap?

Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.

Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year.

This sort of thing just isn’t done. States have asked current workers to contribute more, tweaked the formula for future hires or banned them from the pension plan altogether. But this was apparently the first time that state legislators had forced current retirees to share the pain.

Sharing the burden seems to be the obvious solution so we don’t continue to kick the problem into the future. “We have to take this on, if there is any way of bringing fiscal sanity to our children,” said former Gov. Richard Lamm of Colorado, a Democrat. “The New Deal is demographically obsolete. You can’t fund the dream of the 1960s on the economy of 2010.”

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Sucks for those retirees, but I guess this had to be done at some point.

[Thiebear]

So these higher wage Public workers get paid.

and then the top 5 years are averaged out and they get paid for the rest of their lives?

we are in a recession and the top jobs are Public adding to the problem...

While we increase benefits: quadrupling the problem.

I so need to do another 9years in the gov't and get paid...

[Btubes18]

It will be interesting to see the next few years...People really should be thinking about how to save money for their retirement in different ways, because pensions/social Security won't be around come 10, 15, 20, 25 years from now.

[The Evil Genius]

A contract contains guarantees between two parties. Unless that guarantee is to a public servant - then its okay to renege on the deal, right?

I am always amused that these articles "forget" to mention that these public servants pay into their retirement system.

[Thiebear]

Lots of companies 'HAD' pensions at one point... they go away when you are unable to pay for the ponzi scheme.

I paid into that mythical 401k for years... and i have crap to show for it.

I paid into ss for 24 years and expect nothing.

etc. etc.

[aREDSKIN]

Lots of companies 'HAD' pensions at one point... they go away when you are unable to pay for the ponzi scheme.

I paid into that mythical 401k for years... and i have crap to show for it.

I paid into ss for 24 years and expect nothing.

etc. etc.

I can't speak for all pensions but with SS you don't have a choice to contribute or not. It's confiscation.

[techboy]

I can't speak for all pensions but with SS you don't have a choice to contribute or not. It's confiscation.

Most public pensions don't have a choice either, except for quitting.

Still, even people with pensions (like me) have to face reality: the system is likely unsustainable, and while it sucks to have things changed on us, something has to give. Hopefully it's not too much.

[deejaydana]

A contract contains guarantees between two parties. Unless that guarantee is to a public servant - then its okay to renege on the deal, right?

.

Typical hysterics. You can't act like these public pensions are inviolate. I'm not surprised that parts of the public sector have voted themselves incredibly generous retirement plans. Paying for them in the years and decades to come will prove interesting. You can only squeeze the taxpayer so far. Hopefully the furor that just played out in the City of Bell is the beginning of reform.

[Mursilis]

I am always amused that these articles "forget" to mention that these public servants pay into their retirement system.

So you can say with certainty that every state and municipal pension plan involved employee contributions? You must do some serious research then. And even assuming people paid in, in many cases with these plans, payouts far exceed contributions. The first monthly Social Security recipient paid $24.75 into SS and collected $22,888.92 over her retirement. Are you going to say that's sustainable, or that she deserved all that because she "paid in"?

[The Evil Genius]

So you can say with certainty that every state and municipal pension plan involved employee contributions? You must do some serious research then. And even assuming people paid in, in many cases with these plans, payouts far exceed contributions. The first monthly Social Security recipient paid $24.75 into SS and collected $22,888.92 over her retirement. Are you going to say that's sustainable, or that she deserved all that because she "paid in"?

No.

and

Yes. You know why? Because the system doesn't refund people when they don't collect every dollar that they pay in.

So, will we be refunding Joe Government worker his 5% of salary he paid every month for the past 20 years (into his pension) when his pension is taken away from him?

[The Evil Genius]

Lots of companies 'HAD' pensions at one point... they go away when you are unable to pay for the ponzi scheme.

I paid into that mythical 401k for years... and i have crap to show for it.

I paid into ss for 24 years and expect nothing.

etc. etc.

Lots of companies also paid their workers at rates that were comparable to others in the same industry. They also gave yearly bonuses to those employees during boom times.

Neither of those took place in the public sector.

The pension system is the sole compensation that makes public service work attractive.

[Mursilis]

Lots of companies also paid their workers at rates that were comparable to others in the same industry. They also gave yearly bonuses to those employees during boom times.

Neither of those took place in the public sector.

The pension system is the sole compensation that makes public service work attractive.

Bonuses are awarded in the public sector, and there are lots of other benefits which make public sector work attractive. Where do you get this stuff?

[The Evil Genius]

Bonuses are awarded in the public sector, and there are lots of other benefits which make public sector work attractive. Where do you get this stuff?

Such as? As for bonuses, merit awards are few and far between. They definitely don't exist as they do in the private sector.

[deejaydana]

I don't expect an honest conversation from a public employee when it comes to their retirement plan or the reform of their plan (and trust me I have plenty of friends in that sector). The public employee Unions are going to squeeze the system until it breaks. Can you blame them?

[The Evil Genius]

I don't expect an honest conversation from a public employee when it comes to their retirement plan or the reform of their plan (and trust me I have plenty of friends in that sector). The public employee Unions are going to squeeze the system until it breaks. Can you blame them?

Should anyone expect one for the private sector then either? How are both not biased on this issue?

[Mursilis]

Such as? As for bonuses, merit awards are few and far between. They definitely don't exist as they do in the private sector.

In my agency, that's simply not true. I've gotten one most of my years here (one year, I got two), and nearly half of our employees do every year.

[The Evil Genius]

In my agency, that's simply not true. I've gotten one most of my years here (one year, I got two), and nearly half of our employees do every year.

Are you hiring?

I guess it truly is dependent on where and what level of public service you work at. I haven't seen one in my ten years of public service (bonus that is) and am not aware of it ever being presented to anyone.

[aREDSKIN]

Are you hiring?

I haven't seen one in my ten years of public service (bonus that is) and am not aware of it ever being presented to anyone.

As a public employee perhaps you just never deserved one.

[The Evil Genius]

As a public employee perhaps you just never deserved one.

You may be correct. Although I tend to think most bonuses aren't deserved - they are a retention tool (bribe) to appease the worker and have them overlook other craptacular things that exist at their job.

[DeanCollins]

Let's talk about the Fed pensions. Just talk all of those 20 year retirement (including military) pensions and raise the benefit age requirement to 65 years of age.

[The Evil Genius]

Let's talk about the Fed pensions. Just talk all of those 20 year retirement (including military) pensions and raise the benefit age requirement to 65 years of age.

Are they 2% x years served? So, what, the most that people usually get is around 40-50% of their yearly salary? The majority though probably get 15-25%, right?

[Mursilis]

Are they 2% x years served? So, what, the most that people usually get is around 40-50% of their yearly salary? The majority though probably get 15-25%, right?

The basic formula for Feds under FERS, the current system, is (years of service) x 1% x (average of highest 3 yearly salaries). If you retire at 62 or older with 20 or more years of service, make that 1.1%. So if a typical federal worker starts working for Uncle Sam at age 35, does 30 years, and retires, they'll draw 33% of the average of their highest three salaries (likely their last three years). This is a pay-in system as well, although I don't know the % contribution the worker makes. Most people aren't going to get to 40-50%, but they can if they hang around long enough.

[Hubbs]

Still, even people with pensions (like me) have to face reality: the system is likely unsustainable, and while it sucks to have things changed on us, something has to give. Hopefully it's not too much.

People need to understand this. Attempting to frame the battle as something political is missing the point. It's mathematical. Many of our pension funds simply can't be sustained. They require absolutely ludicrous annual growth to remain functional.

[techboy]

I don't expect an honest conversation from a public employee when it comes to their retirement plan or the reform of their plan (and trust me I have plenty of friends in that sector).

Everyone in this discussion is going to be either a public employee with a pension on the line or a taxpayer who will be on the hook to pay out (technically, employees fall into this category too).

There are no unbiased opinions in this case.

The way I see it, the blame here falls not on the taxpayers or the employees, but on the irresponsible politicians who used overly rosy projections about the markets when determining funding. It's not a coincidince that this crisis is occurring after the markets tanked.

[Mursilis]

The way I see it, the blame here falls not on the taxpayers or the employees, but on the irresponsible politicians who used overly rosy projections about the markets when determining funding. It's not a coincidince that this crisis is occurring after the markets tanked.

And who elected those irresponsible politicians? The enemy is in the mirror. The voters constantly pick the candidate who promises short-term gains (more gov't benefits and/or lower taxes) at the expense of the long-term health of the country.