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  #1271  
Old 09-22-2017, 12:49 PM
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Mary Pat Campbell
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Should public pensions be fully-funded?

POINT
http://www.sandiegouniontribune.com/...914-story.html

Quote:
Why full funding of pensions is a waste of money

.....
In fact, full funding of public pension plans isn’t necessary or even prudent for their healthy operation, according to a recent analysis by Tom Sgouros of the Haas Institute in Berkeley.
.....
In the private sector, pension systems need to be 100 percent funded to protect the pensions of workers in case of bankruptcy. In the public sector, however, while governments may encounter periodic budget ups and downs due to economic cycles and fluctuating revenues, they are not going away.
.....
Full funding of a public pension plan amounts to covering the total future benefits of all current workers. The Hass Institute analysis describes this as a waste of money because it equates to insuring against a city or county’s disappearance.
.....
Imagine you sign a lease to rent an apartment for 12 months at $1,000 a month. Your ultimate obligation is $12,000, but should the landlord refuse to rent to you if you can’t show you have $12,000 available at the outset of the lease (100 percent funding)? No, the landlord simply wants assurance you can pay your rent each month.

...
If you’re a homeowner, you probably have a 30-year mortgage. Your mortgage allows you to own your home without fully funding the purchase. If, for example, you have a $300,000 home with a $150,000 mortgage, it might be said that your homeownership is at a 50 percent funded ratio. That’s not reckless; it’s prudent use of debt.
...
Each of these examples involves an ultimate obligation to pay off all the debt by a specific date. Public pensions are different in that the obligation is open ended, but so are the income sources.
...
Let’s consider a pension fund that has 70 percent of what it needs to pay all retirees decades in the future. During any given year, the pension fund must pay promised benefits to current retirees. Provided that annual contributions from the employer and current employees, combined with investment returns, are equal to benefit costs, the fund operates at break-even.

If at the end of the year the fund is at 70 percent, it’s a wash. The fund can go on indefinitely under these conditions. According to the Haas report, America’s public pension systems were, on average, 74 percent funded as of 2014.
....
There are two strong reasons not to move to 100 percent funding.

First, doing so would require significant, unnecessary expense to employees, employers and taxpayers.

Since public pensions can exist indefinitely at 70 percent or 80 percent funding, why not use those funds for more immediate needs?
....
There’s a larger concern, though.

Historically, when pensions in California approached 100 percent funding due to unusually high investment returns, policymakers reduced or skipped annual contributions, under the flawed assumption that high market returns were the new normal. They also increased benefits without providing adequate funding, again expecting investment returns would cover the cost. When investment returns returned to normal, these decisions had long-term negative consequences.
....
So when you hear concerns about public pensions being underfunded, understand that ensuring 100 percent funding isn’t critical to the healthy functioning of a public pension system, and it can be very expensive.

Both the city and county of San Diego pensions systems are quite stable at a 70-80 percent funding ratio.
The authors of that op-ed:
John J. McTighe is president of Retired Employees of San Diego County.

Jim Baross is president, City of San Diego Retired Employees’ Association.

David A. Hall is president, City of San Diego Retired Fire and Police Association.

COUNTERPOINT

http://www.sandiegouniontribune.com/...921-story.html

This is by:
Quote:
Vortmann has served on the boards of the pension agencies of both San Diego County and the city of San Diego. He’s also been a member of the mayor’s Blue Ribbon Finance Committee and the city’s Pension Reform Commission.
Quote:
Commentary | Why unfunded public pension plans amount to theft


The opinion piece “Why full funding of public pensions wastes money” (Sept. 15) was very disturbing. To try to convince taxpayers there is no reason to fully fund pension plans is a disservice to public employees and retirees.

Today, taxpayers are paying part of the annual pension costs for employees who provided their services to the community years ago. Taxpayers of those previous years did not pay the total employment costs of the firefighters or the librarians for their services back then. Some of those costs were pushed out to later years’ taxpayers — up to 20 years in many cases. Our children will be paying part of their future taxes to pay for pensions earned for services performed many years ago.

That is what happens when there is an unfunded pension liability. This constitutes an intergenerational theft. Delay the street repairs today, we need to first finish paying for the pension the street repair man earned 10 years ago!

…..

The authors recognize that corporations need to fully fund their pension plans because the corporation might go bankrupt and thus be unable to pay pension benefits. But in contrast, they argue that governments never “go away.” The argument is governments will always be there and will have sufficient taxing power (and the political will to use such) to tax future years’ taxpayers whatever is needed to pay the then-current retirees’ pension checks. This is simply not true!

Look at the millions of Greeks who had their pensions cut severely due to an inability of the Greek government to pay for those promised pensions. Greece did not “go away,” but the pensions sure did!

Public entities may not “go away,” but they can and do go bankrupt.

How about Loyalton, California, where retires saw pensions cut 60 percent, or East San Gabriel Valley where pensions were cut 63 percent?

How about Detroit, the largest-ever municipal bankruptcy? Retirement checks were reduced and the annual cost of living increase was eliminated.

…..
Municipal bankruptcy is relatively new; the priority of pensions in bankruptcy is still unsettled law. But the inescapable fact is there is only one guarantee the retiree will receive his pension check. And that is to have a fully funded pension plan.

Arguing that “fully funding a public pension plan is not needed” and is actually a “waste” of money is a disservice to public retiree constituents.
MEEPPOINT

my own bloggy reactions:

http://stump.marypat.org/article/823...-fully-funders

http://stump.marypat.org/article/825...ng-a-follow-up

original response to Haas paper in March:
http://stump.marypat.org/article/671...ublic-pensions
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  #1272  
Old Yesterday, 04:17 PM
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Mary Pat Campbell
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ILLINOIS
LEGISLATURE

https://www.illinoispolicy.org/curri...of-retirement/

Quote:
CURRIE TO RECEIVE 6-FIGURE PENSION AFTER FIRST YEAR OF RETIREMENT


The longtime House majority leader will benefit from a sweetener provision that grants massive pension spikes to career lawmakers after one year of retirement.

Illinois House Majority Leader Barbara Flynn Currie, D-Chicago, has announced she will not run for re-election in 2018.

Large pension payouts await the longtime lawmaker. And the fund from which those payouts will be drawn is one example of how Illinois’ most powerful politicians have shown little interest in leading the state out of its pension crisis.

The secret to a big spike

A little-known provision within the General Assembly Retirement System, or GARS, gifts massive pension payouts to state lawmakers who have been in office the longest – the very men and women responsible for the state’s pension crisis, and who refuse needed reforms.

When she steps down, Currie will start drawing a six-figure pension after one year.

That’s because GARS allows lawmakers who were elected before 2003 to hoard pension “spikes.” After serving 20 years in office or turning age 55, whichever comes later, these lawmakers bank a 3 percent boost to their eventual pensions each year.

Currie has been in the House since 1979 and is now 77. Therefore, she has been collecting 3 percent boosts every year since her 20th year of service concluded at the start of 2000.

When she retires as majority leader, her salary will likely stand at over $91,000, including her base salary and leadership bonus. That means her first-year pension payment will be more than $77,000.

Then the spikes kick in. Her second-year pension will total more than $121,000, according to GARS rules.

Of course, Currie has contributed a portion of each paycheck to GARS throughout her career. But within three years, the state will have paid back more than her entire contribution in pension checks.

Currie is not the only active member of the General Assembly who will benefit from this provision upon retirement. House Speaker Mike Madigan, Senate President John Cullerton and other longtime lawmakers on both sides of the aisle are also set to cash in.
Given that Madigan has been in the Assembly since before I was born, perhaps that's fair. Whenever he gets around to retiring. But perhaps he'll just die in his seat, just like so many U.S. senators.
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  #1273  
Old Today, 08:47 AM
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Mary Pat Campbell
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SANATOGA, PENNSYLVANIA

http://sanatogapost.com/2017/09/22/t...s-rising-2018/

Quote:
Township Pension Plan Costs Rising In 2018

SANATOGA PA – Lower Pottsgrove’s payments to support retirement pensions for both its police and non-uniformed employees will rise next year by a combined total of about $53,000, according to its actuary, as the township makes biennial adjustments to recognize that returns on investments and wage rate increases have changed significantly.

The Board of Commissioners voted Thursday (Sept. 21, 2017) to meet 2018 minimum municipal obligation payments to the state of $240,534 for the police pension plan, and $162,401 for its regular workers. The police payment is $36,000 higher than last year, Joe Duda of Duda Actuarial Services told board members; the non-uniformed payment, $17,000 higher.

Some pension expenses will later be refunded to the township in the form of state aid.

Due to federally lowered rates, interest and other money earned on investments no longer produce 8-percent returns, Duda noted, and employees aren’t receiving big raises in an economy where the annual inflation rate is 2 percent or less. So as they were two years ago, the pension plans have again been adjusted to reflect economic reality, he said.

Duda’s calculations will affect township payments in 2018 and 2019. Township pension obligations have “trickled up” to ensure the plans have enough money to meet immediate and foreseeable payouts to retirees, he added.

It’s estimated that Lower Pottsgrove will maintain a “safe” funded pension liability of roughly 80 percent, comparable to many of its municipal neighbors. Ninety percent or higher would be ideal, he agreed, but would cost taxpayers much more. The new numbers represent “measured steps” that make adequate retirement money available at a reasonable expense, Duda said.

“It’s good to try and get the (investment return and wage) numbers down” as the board intends, Duda explained, “but you want to do it gradually so you don’t get hurt.”
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