States/ Cities/Municipalities Pensions...

[Deleted]

Why are they so underfunded? And why didn't they do anything about it?

I mean i am sure they knew the money had to be there at some point to payout to their fellow retired employees. Did someone wish the problem would go away?

And do you think they will ever fix it?

[swamp]

Jul 6, 2011 9:42:33 GMT -5 TheHaitian said:

Why are they so underfunded? And why didn't they do anything about it?

I mean i am sure they knew the money had to be there at some point to payout to their fellow retired employees. Did someone wish the problem would go away?

And do you think they will ever fix it?

Because people are living longer...........

For example, my dad was a firefighter. They usually died young from the work conditions. With the introduction of all the safety equipment, the retired firefighters are now living a normal life expectancy. The health care costs are killing the city.

[gobermitcheese]

Most of the municipalities in the state of Iowa share a pension plan and fund, IPERS. It is underfunded but they have raised both employer(Read taxpayer) contributions as well as employee contributions. It seems to be on track to be fully funded at some point and I think Iowa has largely avoided the pension problem other states have. Also IPERS benefits are generous but they do not have the loopholes and extravagant benefits other states have.

[Deleted]

I saw situations where retirement formulas were boosted to make up for lower pay (ie. lowering the retirement age or boosting the formula from 2.5% at 50 to 3% at 50 for public safety employees) It was sold on the benefit not "costing anything" because at the time the investment returns were far exceeding the needed contributions.

Fast forward to a severe recession where both investment returns AND values sank + wide spread unemployment/cuts in government spending causing older government employees to retire early and start drawing on their pensions (and for longer as Swamp points out).

I've been tempted to start drawing on mine early just so I have something!

[frep]

It's probably the same theory as social security and medicare/medicaid. The States/Cities/etc. know something has to be done but if they address the issue it'll be unpopular and might ruin their re-election chances. It's far easier to ignore it and hope by the time something HAS to be done that it's somebody else's problem.

[BeenThere...DoneThat...]

...I'm pretty sure our local govt. took the cue from the feds and raided the "trust fund" and used it for the general fund... that didn't help matters... makes them think the newer programs are fundable...

[pig]

Because people are living longer...........

I think that's a minor factor compared to how fast the cost of health care ballooned in such a short time. But yes health care is a major factor.

And why didn't they do anything about it?

They are. All the school districts here let go a bunch of teachers and they are not done yet.

[BeenThere...DoneThat...]

...I know people who've basically have done the same thing, though... they raid their home equity and 401Ks to add to their general budgets... year after year... it makes them think their lifestyles are "within their means"

[Clever Username]

I think there are two major factors:
1. They spent the money on pet project to 'fund' their re-election votes.

2. Poorly written policies allowed current retirees to empty the coffers.
I have a neighbor who was a principal. Even he doesn't understand how he gets paid so much in retirement.
He got two big raises his last two years. Ontop of that he liquidated a boat load of accumulated vacation time (a full year is not uncommon) and the metrics are based off of your final 3 years' salary.

[dancinmama]

Jul 6, 2011 9:42:33 GMT -5 TheHaitian said:

Why are they so underfunded? And why didn't they do anything about it?

I mean i am sure they knew the money had to be there at some point to payout to their fellow retired employees. Did someone wish the problem would go away?

And do you think they will ever fix it?

It's hard to say and I'm sure that it varies from one entity/municipality to another. I'm sure the drastic drop in tax revenues is taking its toll. My property taxes (paid to the country) dropped from over $14K/yr. to under $7K last year - that's over $7K less in revenue from ONE household.

Sales taxes are a source of revenue for municipalities. Revenues drastically decrease in recessions.

State income taxes decrease dramatically in recessions due to unemployment.

IF the economy does not turn around, there WILL BE a day of reckoning. It is not unusual for retired "first responders" to receive 90% of their pensionable earnings in retirement (3% for each year worked often based on their last 2-3 years of earnings). As mentioned before, many workers pad those last years with overtime worked, accrued sick leave, and accrued vacation so their last year's earnings are drastically exaggerated making their lifetime pension much higher than it would be otherwise. A pension of $100K/yr. or more is not unusual for long-time workers and many times the option to retire starts much younger (around 50).

But let's be conservative and say that the average firefighter or police officer gets $75K/yr. in retirement; less than 14 retirees = $1M/yr. But there are a lot more than 14 that are retired and there are many other municipal workers who are also receiving pensions (AND retiree medical).
Each new retiree added to the rolls, in subsequent years, compound the problem.

You can see how it has become/will be completely unsustainable. These people are counting on this money (just as many citizens are counting on social security and medicare). What do you think will happen across this country as these municipal pension funds run dry?

[Deleted]

Dr. Pig, laying off people might work in the short term to balance the budget, but do you think it will work long term?

Swamp, ok living longer. Do you think we will raise the age of retirement or demand more money from the workers and taxpayers?

[jarhead1976]

Many were invested in companys like ENRON. There are plenty more ENRONS out there these funds are invested in. The to good to be true funds. like Social Security it has been robbed by those holding the trust.

[pig]

Dr. Pig, laying off people might work in the short term to balance the budget, but do you think it will work long term?

As far as schools and government workers go not only do I think it can work it must. Our schools and government agencies are so bloated with excess that it has to be scaled back on all fronts.

[brdsl]

Jul 6, 2011 9:42:33 GMT -5 TheHaitian said:

Why are they so underfunded? And why didn't they do anything about it?

I mean i am sure they knew the money had to be there at some point to payout to their fellow retired employees. Did someone wish the problem would go away?

And do you think they will ever fix it?

Why? The market dropped, didn't perform to their expectations, people living longer.

Do anything? They didn't have a crystal ball 20-30 years ago. I don't think we have one now. Hindsight is 20/20.

Wished...they probably made projections, and those investments were modified to meet the projections. When the higher risk investments (higher return) failed...so are the pensions.

Fix? Sure, over time people will die, pensions will be eliminated (new employees), and benefits to the pensioners will be reduced.


The main problem is when the positions were created, the pay was horrible, so to get people to go into the positions, they created better benefits. Well, the pay gradually increased ~ private industry decreased or stagnated, and the rest is your conflict.

[muttleynfelix]

Jul 6, 2011 9:42:33 GMT -5 TheHaitian said:

Why are they so underfunded? And why didn't they do anything about it?

I mean i am sure they knew the money had to be there at some point to payout to their fellow retired employees. Did someone wish the problem would go away?

And do you think they will ever fix it?

Well in the City I work in, the Police and FIrefighters pension was deliberately not funded for 5 years in the mid 2000s. A court order, a new tax, a new Mayor (old one retired), and a new city manager (old one retired) were all required to fix the problem and play catch up. The city has sold some property to play catch up and the bounceback in the market has helped. There was a huge shake up with people being forced out in all departments and a hiring freeze for a couple years. It still isn't completely fixed but it has come a long way.

[greenstone]

1. Making generous promises in boom years, that are not sustainable in lean years.
2. Politicians not funding or underfunding these pots from the get-to because they have 20-30 years to worry about where the money will come from. Welcome to 20-30 years later!
3. Raiding the funds without a detailed plan on how the money will be repaid, and no means to enforce repayment.
4. The proven (to me, at least) unsustainable idea that the promised benefits to one employee will be paid by contributions from future workers. SS is the proof (to me again) why this can not work. You can not predict the future conditions such as economic slowdowns or recession, a large Baby Boom population followed by smaller generations, life expectatency and medical advancements.

I may be jaded but I much rather have my future benefits fully funded today, not praying and hoping future generations will keep a promise made to me by the previous generation.

[formerexpat]

Why are they so underfunded? And why didn't they do anything about it?

I mean i am sure they knew the money had to be there at some point to payout to their fellow retired employees. Did someone wish the problem would go away?

And do you think they will ever fix it?

1) they didn't collect enough money from the participants
2) they promised too much
3) pension funds assume 8% return
4) it's politically difficult to tell your constituents that they'd have to be taxed more to fund the gap
5) it's easier to pass it on to the next politician and tax payers.

At some point, all ponzi schemes come to an end. Unfortunately, it's at the worst time - when people go to get their money from the ponzi scheme.

SS & Medicare have the same issue.

Anyone that plans on relying heavily on a government pension, SS or Medicare are going to be sadly disappointed. All of these programs will lower their benefits in one way, shape or form.

If not sooner, it will happen once the boomers are no longer the dominant block for voting [i.e. next 15 years].

[Deleted]

The reasons given above pretty much hit the nail on the head. There are regulations (ERISA, or Employee Retirement Income Security Act) that specify how pensions should be valued to see if they're adequately funded, and I should mention that 8% would NOT be a permitted investment rate of return unless the pension fund were totally invested in bonds with 8% yield to maturity with zero chance of default.

ERISA does, however, allow the "ongoing business" type of valuation, in which you can count the contributions of future entrants into the system. That's far more liberal than the "liquidation" type valuation, which asks the question, "if we shut off the pension plan right now to future entrants and paid what we've already promised to current participants, do we have enough money in the pot?" Few plans would pass that test and the more rigorous you make the regs, the more employers are going to give up and terminate their defined benefit plans. (That's happened already among businesses.)

With the municipal plans, though, it's all been made worse by politicians making promises that have a fairly low cost over the short run (i.e. while they're in office) and massive costs to future taxpayers.