Niki Kelly, writing for the Fort Wayne Journal Gazette, has a very good article on a proposal being considered by the General Assembly’s pension oversight committee. I’m out of time to write much about it this morning, but wanted to throw up a link. It has to do with changing a pension option for new State retirees from more of a guaranteed return annuity to a privately managed fund where the employee bears the risk. I’m always a little stunned when the terms of compensation for employment can be changed after the fact. A lot of these employees have traded huge chunks of the only life they’ll get in anticipation of a secure pension.
Seems like everyone could still just take the lump sum.
On another note, these public pensions trouble me. Defined benefit plans are promises made for payment decades in the future. Public entities keep making these promises when private companies have long stopped. Sometimes, we are seeing, these promises can’t be kept.
That is different than changing terms of compensation. But, with a public entity it’s hard to say, “we can’t afford it.”
I’m also not really sure how strong the promise is, from the start. Do public sector workers, when they begin their careers, really understand their defined benefit pension? Is it really something anyone even explains to them? Or is it just sort of something they learn about over the years that becomes important to them as they near retirment?
I think teachers hired in recent years are probably told more along the lines of, well there’s a pension, it might be there, but these days, who knows.
Is it sort of patronizing when the employer puts higher earners into a self directed retirment plan of some sort, while lower earners still get the defined benefit plan. I don’t know, it does make intuitive sense this way. But, now that 7% looks like a lot the state just wants to save and push everyone out.
Now, after going back and forth in my mind, I think it’s a crock.
I think the pension is something that state workers who have been there awhile very much have in mind when making career decisions. The new hire for the first few years? Probably not.
But, when I was at LSA, I saw a number of lawyers who had been there for a good long while, who were capable of making more and perhaps doing more rewarding work in private practice but, ultimately, were probably making a cost/benefit choice where the benefits of security helped outweigh the downsides of public employment.
“Seems like everyone could still just take the lump sum.”
Aren’t there serious tax consequences to “just taking the lump sum”?
As in paying all that tax in one year rather than spreading it out over time at a lower rate?
“State Considers Shifting Pension Risk to Retirees”
Plan accordingly retirees.
They want your pension for their buddies and will likely have it before too long.
What surprises me is that only 50% take the annuity with a 7.5% rate. That tells me that 50% are already getting their acct. privatized with the help of their “financial advisor.” It’s time for all financial advisors to have the fiduciary responsiblity that pretty much all licensed professionals embrace.
The problem with pensions is that they are tied to wages. When wages were low, really low, pension payouts were likely more manageable. However, many public sector jobs have started to pay more higher wages than in years past. Granted, not all city, county, and state jobs are high wage jobs, but there are plenty of places that offer a decent wage. Most public safety in higher populated areas have seen gains in yearly wage figures, which only means huge payouts under the 77 Perf plan. Likewise, IU and Purdue (and maybe some of the other smaller public universities), pay a lot of their employees over what most consider a “living wage.” IU and Purdue left PERF this year.
Here’s where it’s coming from: http://billmoyers.com/2013/09/30/matt-taibbi-on-wall-streets-campaign-to-loot-public-pensions/