Ending the Pension Monster

[undertheradar]

With the financial turmoil that we are all in, isn't it time that everyone retired based upon social security and funds saved via 401ks and IRAs? It is sickening to hear elected representatives receive outrageous pensions while the people they are elected to serve are expected to exist on much less. I would love to see the elimination of pensions for all public employees, be they emergency services, office clerks, etc. There would be much motivation to have government agencies be more frugal if they were forced to retire with the same drop in income as those employed in the private sector. It is amazing to learn how many "young" retirees there are when doing the pension math. The combination of age and years served has lead to an excessive abuse of the retirement formula. It is time to put an end to the practice of averaging the final 3 years of earnings to determine pension level of these "young" retirees.

 

[undertheradar]

Wow, no opinions.

 

[JVL1018]

I agree wholeheartedly with you.
I think it's insane..and my brother is a cop so it's not like I don't know and love people who benefit from the pension system.
It's beyond ridiculous.

 

[jocon]

My wife is a teacher in MA.... and I have to agree with you. These "fixed costs" are killing state and local budgets. I think current employees should be grandfathered in and then effective the next FY a 401K type system, with employer matching contributions should be implemented.

If I'm correct, I heard that retired public employees exhaust their contributions and growth to their pension within 5 years...After that, It's like having a full time employee on the payroll who performs no duties. Some common sense has to be used.

The old thinking was that public employees gave up lucrative private sector wages for low paying public service jobs. Look at the payroll for public employees and you can clearly see that the vast majority are compensated very fairly and some excessively.

 

[CapeCodTenor]

I agree completely.

My wife is a teacher in MA.... and I have to agree with you. These "fixed costs" are killing state and local budgets. I think current employees should be grandfathered in and then effective the next FY a 401K type system, with employer matching contributions should be implemented.

If I'm correct, I heard that retired public employees exhaust their contributions and growth to their pension within 5 years...After that, It's like having a full time employee on the payroll who performs no duties. Some common sense has to be used.

The old thinking was that public employees gave up lucrative private sector wages for low paying public service jobs. Look at the payroll for public employees and you can clearly see that the vast majority are compensated very fairly and some excessively.

How about the MA state legislature's constitutionally mandated raise? I can't believe that former speaker Sal Demasi had the never to say that the legislature was only following the law when it came to their raise, but yet they keep ignoring the voter approved law that requires the legislature to lower the state income tax to 5%. Did you know that if a member of the state legislature works just one day in a calendar year he/she adds one whole year onto their pension? And if you work for the MBTA, you can retire with full pension after something like 23 years, I think, but it is some ridiculously low number. I really wish they'd do some serious pension reform here in MA.

 

[CPT Tripss]

Sure - and while we are at it, let's eliminate social security too. Cops, firefighters, military personnel, border patrol, etc., just let 'em hang out there with no pension . . .
And speaking of dumb ideas, what about also eliminating the income tax deduction for kids? There are just way too many irresponsible people having lots of kids.

No, I am not serious . . . neither 401Ks nor IRAs were designed to be the total pension package.

Now if you were discussing reforming the various "pension grab" features voted on for elected officials . . . now that might get some traction.

 

[barkley]

curious-what do people consider to be a "young retiree"?

 

[CapeCodTenor]

Sure - and while we are at it, let's eliminate social security too. Cops, firefighters, military personnel, border patrol, etc., just let 'em hang out there with no pension . . .
And speaking of dumb ideas, what about also eliminating the income tax deduction for kids? There are just way too many irresponsible people having lots of kids.

No, I am not serious . . . neither 401Ks nor IRAs were designed to be the total pension package.

Now if you were discussing reforming the various "pension grab" features voted on for elected officials . . . now that might get some traction.

Do you have a pension? I don't have a pension. I'm being hung out there with no pension. I have to be happy with a 401k. That's it. Nothing more. When I retire it's going to be bye, bye , see ya, thanks for the years. Oh, before we forget, here's gold watch.

ETA: I'm playing devils advocate here. I happen to not mind pensions for the military, cops and firefighters because they put their lives on the line everyday.

 

[PatsMom]

My wife is a teacher in MA.... and I have to agree with you. These "fixed costs" are killing state and local budgets. I think current employees should be grandfathered in and then effective the next FY a 401K type system, with employer matching contributions should be implemented.

If I'm correct, I heard that retired public employees exhaust their contributions and growth to their pension within 5 years...After that, It's like having a full time employee on the payroll who performs no duties. Some common sense has to be used.

The old thinking was that public employees gave up lucrative private sector wages for low paying public service jobs. Look at the payroll for public employees and you can clearly see that the vast majority are compensated very fairly and some excessively.

The Mass teacher's do have a pretty good pension plan - if you work there your whole career. However, since Mass teacher's don't participate in social security, if you have a small pension from Mass (taught there only 10 years or so) you have greatly affected your social security entitlement from other jobs that did pay into social security because of the windfall elimination provision.

Public sector pension plans did originate under the theory that people could earn much more in the private sector. I have to agree that no longer holds true for many. In NH, teachers and state workers can retire very young - as early as age 50 with a reduced benefit amount if they meet the required number of years of service.

 

[Feralpeg]

I believe that pension plans are a dieing animal. New companies will not offer them. Eventually, established companies will do away with them and offer 401k plans.

More and more companies think that it is the responsibility of the individual to plan for their own retirement. They pay the employee for their service to the company while they work there, but are not responsible for them after they retire. That was the thinking at my company. I retired with only a 401k. Fortunately, I had been contributing to the plan for many years. When I retired, some people in my department threw a small party, in my honor, in a conference room with a cake. I did not receive anything from my company for which I had worked 30 years. Fifteen of those years, I was in a management position. The days of companies caring for their employees beyond giving them a salary are pretty much gone.

 

[JimmyPicker]

The days of companies caring for their employees beyond giving them a salary are pretty much gone.

That's a blanket statement and not true of all companies.

But, given the state of the economy and seeing how many established businesses are trimming down or even closing up, it's hard to see how they can afford to offer their employees more. Businesses are having a hard enough time staying open as it is. When companies are in the red, you can't expect them to give more away.

 

[Cool-Beans]

Do I think it is fair that we have to pay for other people's retirement? Nope. They should save for theirs just like we save for ours.

I think it is wildly selfish to demand that other people - people who are having trouble saving for their own retirement - pay for your retirement.

I'll give it to the military, though. I pretty much give them whatever they want. They serve a purpose and do their jobs well.

 

[eliza61]

With the financial turmoil that we are all in, isn't it time that everyone retired based upon social security and funds saved via 401ks and IRAs? It is sickening to hear elected representatives receive outrageous pensions while the people they are elected to serve are expected to exist on much less. I would love to see the elimination of pensions for all public employees, be they emergency services, office clerks, etc. There would be much motivation to have government agencies be more frugal if they were forced to retire with the same drop in income as those employed in the private sector. It is amazing to learn how many "young" retirees there are when doing the pension math. The combination of age and years served has lead to an excessive abuse of the retirement formula. It is time to put an end to the practice of averaging the final 3 years of earnings to determine pension level of these "young" retirees.

Careful what you ask for:
Let's look at this scenerio: Nowadays the savings rate of most Americans is zero. We have boat loads of people who do have the opportunity to save in their 401K programs and can't afford it. 2ndly, Most americans are not financially savvy enough on how to even get the best return. Why do you think there was such an uproar when Bush tried to privatize Social Security?

Now before you say: "If they don't save, that's their problem" remember these people are not suddenly going to disappear. Who do you think is going to be footing the tab for millions of seniors w/o a pension to live? Let's not even get into the cost of health care.

Not sure if I would call it abuse, since it's perfectly legal. In NYC police can retire after 20 years. I believe they use the last 3 years of their salary to determine pension. That means some cops can retire at a very young age. They are not abusing the system, that's the contract. Why wouldn't they take advantage of it?

 

[eliza61]

Do I think it is fair that we have to pay for other people's retirement? Nope. They should save for theirs just like we save for ours.

I think it is wildly selfish to demand that other people - people who are having trouble saving for their own retirement - pay for your retirement.

I'll give it to the military, though. I pretty much give them whatever they want. They serve a purpose and do their jobs well.

Either way, fair or not we pay. These folks are not going to disappear. If they don't save, when they get old they will go on public assistance, which we pay for also.

 

[undertheradar]

curious-what do people consider to be a "young retiree"?

We have retirees here who are age 48!

Yes, our career military should be rewarded after age 60.

Why should current participants be "grandfathered" in? When private employers end a pension fund or it becomes insolvent there are no protections for those plan participants! If everyone who worked pays into the same fund, our elected officials included, there would be motivation to better fund our retirees. As it stands now, there is no incentive to change the current practice.

 

[undertheradar]

Careful what you ask for:
Let's look at this scenerio: Nowadays the savings rate of most Americans is zero. We have boat loads of people who do have the opportunity to save in their 401K programs and can't afford it. 2ndly, Most americans are not financially savvy enough on how to even get the best return. Why do you think there was such an uproar when Bush tried to privatize Social Security?

Now before you say: "If they don't save, that's their problem" remember these people are not suddenly going to disappear. Who do you think is going to be footing the tab for millions of seniors w/o a pension to live? Let's not even get into the cost of health care.

Not sure if I would call it abuse, since it's perfectly legal. In NYC police can retire after 20 years. I believe they use the last 3 years of their salary to determine pension. That means some cops can retire at a very young age. They are not abusing the system, that's the contract. Why wouldn't they take advantage of it?

Your last sentence says it all!

 

[Quiksilvr]

With the financial turmoil that we are all in, isn't it time that everyone retired based upon social security and funds saved via 401ks and IRAs? It is sickening to hear elected representatives receive outrageous pensions while the people they are elected to serve are expected to exist on much less. I would love to see the elimination of pensions for all public employees, be they emergency services, office clerks, etc. There would be much motivation to have government agencies be more frugal if they were forced to retire with the same drop in income as those employed in the private sector. It is amazing to learn how many "young" retirees there are when doing the pension math. The combination of age and years served has lead to an excessive abuse of the retirement formula. It is time to put an end to the practice of averaging the final 3 years of earnings to determine pension level of these "young" retirees.

I disagree with you.

I think you fail to realize that the federal pension system is nowhere near as generous as it was twenty years ago. If you are in the military, you certainly do well enough, but younger civil servants (I'm not talking about the older ones who still get benefits under the old system) cannot abuse the system because the system is different.

The other government systems that pay pensions to their employees (and I'm talking about state, local, etc.) do so as an employee benefit. Companies in the private sector used to do this as well (very few do anymore). The pension was an employee benefit designed to keep you working for the company, and at least nominally represented a willingness to work for a lower current salary in exchange for a pension at retirement. There is nothing wrong with that system. If you are in an industry that is lucky enough to have that, then fine. Most companies don't do this anymore because it's very expensive (longer life spans combined with a stagnant "retirement age" means more money has to go to fund the promised benefits). When pensions were first regulated in the 1970s, companies expected that most people would die between 65-75. Now, there are people hanging on for much longer than that, which makes it more expensive to provide the benefit. So, they are pushing the cost off onto the worker via 401(k) and IRA.

The government could certainly do that as well, but I don't think they will. I don't believe that the fact that these people are paid with tax dollars makes their employee benefits any more "reprehensible." Benefits like that are an inducement to attract good workers. There are several partners at my firm who are leaving to go work for President Obama. These guys make serious money (I'm talking millions of dollars per year). Once they go to work for Obama, they will be making less than I do... and I'm a lowly associate. If the government were to ever want me to come work for them, they'd have to sweeten the pot somehow. Retirement benefits are one way to do that.

I guess at the end of the day I don't begrudge people the benefits they are able to get from their employers. You wouldn't want the government to tell you that your employer can't give you a 401(k) match anymore, so what right do you have to call for the destruction of the pension for some schmuck who works at Engraving and Printing? The guy's just an employee, same as you. It's not his fault his employer gives him different (better) benefits.

 

[jrmasm]

We have retirees here who are age 48!

Yes, our career military should be rewarded after age 60.

Why should current participants be "grandfathered" in? When private employers end a pension fund or it becomes insolvent there are no protections for those plan participants! If everyone who worked pays into the same fund, our elected officials included, there would be motivation to better fund our retirees. As it stands now, there is no incentive to change the current practice.

You seem to think that no one contributes to their pension. Am I right?

 

[Christine]

I disagree with you.

I think you fail to realize that the federal pension system is nowhere near as generous as it was twenty years ago. If you are in the military, you certainly do well enough, but younger civil servants (I'm not talking about the older ones who still get benefits under the old system) cannot abuse the system because the system is different.

Yep.

I am a federal employee is is not getting some ridiculously wonderful pension. They stopped enrolling employees in that plan (CSRS) back in 1984. The last few folks on that pension plan are now close to retiring. It is a wonderful plan. If you work your 30 years, you get something like 80% of your highest salary average over your last 3 years. Not bad. You get no SS and you never had to contribute.

The *new* system, which is now over 20 years old is the typical 401K plan. There is a small pension that is 1% of your salary for every year that you work.

As for elected officials such as senators, etc., I believe they do have a different pension plan.

 

[Quiksilvr]

We have retirees here who are age 48!

Yes, our career military should be rewarded after age 60.

Why should current participants be "grandfathered" in? When private employers end a pension fund or it becomes insolvent there are no protections for those plan participants! If everyone who worked pays into the same fund, our elected officials included, there would be motivation to better fund our retirees. As it stands now, there is no incentive to change the current practice.

This is completely and utterly incorrect.

When a private employer terminates a qualified pension plan (i.e., the type of pension plan you're talking about), it is required by law to be assumed by the Pension Benefit Guaranty Corporation. The PBGC acts as an insurance company that insures pension benefits. Each year, your employer is required to pay a certain amount to the PBGC as "premium" for each participant in the plan. The employer is REQUIRED to do this. If they don't the plan fiduciaries could go to jail.

When a company goes bankrupt, the PBGC automatically assumes control of the plan and its assets. If the company is merely in trouble, it can apply to the PBGC to be assumed. The PBGC works with the company to try to maintain company control, but if the plan is too far gone, then the PBGC assumes it. Additionally, the Internal Revenue Code requires that pension plans maintain a certain level of funding. Beginning this year, that required level of funding is 100%. In the past, it was around 80%. The idea is to limit the number of plans that the PBGC must assume.

The PBGC pays out a similar level of benefits once it has assumed the plan. Certain higher-income workers and some workers who did not work long enough before retiring will have their benefits reduced somewhat, but this usually does not affect people (unless you have the misfortune to be an airline pilot).

Please do not spout off about things you clearly do not understand at all. Plan participants have many protections built into the Internal Revenue Code and the US Code generally via the Employee Retirement Income Security Act of 1974. If your company willfully violates ERISA, they can pay huge fines and go to jail. Executives do not want to do that, so they generally do a pretty good job of following the rules. Many smaller employers are clueless when it comes to operating their benefit plans correctly, but smaller employers are also unlikely to have a pension plan, and are more likely to have a 401(k) plan that is required by law to be fully funded at all times.