I'm worried about my pension

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FinancialRookie
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I'm worried about my pension

Post by FinancialRookie » Sat Feb 09, 2019 1:57 pm

I know there are a couple actuaries and fund managers floating around on the forum and wanted to get your perspective.

I will be eligible for a Fire Service Pension Plan in 16 more years. Currently the plan services approx 11k employees, retirees, and beneficiaries. We recently had an overview session of the plan for our Local members. Here is a quick breakdown of the fund:

US Equity 24.56%
Int'l Equity 22.21%
Global Fixed Income 21.98%
Hedge Funds 9.35%
Real Assets 9.3%
Private Equity 11.02%

The fund manages $478.7M, but is only currently 52% funded, and projections over the next 5 years has that number dropping to 47% with the implementation of a DROP program. The County has committed to 100% funding by 2044 (politics are no guarantee).

The trustees are claiming we have had flat CYTD performance due to the lagging international market, but are using a 7.5% forward expected rate of return. This seems incredibly high to me.

I am saving like my pension will not be there, but I am in the vast minority. Recently they increased pension contributions on individuals with >10 years of service time, capturing the highest salaries in the dept which is a good thing. They have also gradually increased contributions for new hires over the years.

I have found it to be hard to find comparable data for similar funds, but how worried should I be about the fund's ability to pay out for the next 60 years?

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bengal22
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Re: I'm worried about my pension

Post by bengal22 » Sat Feb 09, 2019 2:01 pm

52% funded sounds horrifying low to me. I am aware of major corporation that had a 80%(later proved to be lowballed in their estimation) that was turned over to the PBGC. Now I have no experience with public pensions and I assume their is a little more pressure to keep them afloat. I guess my only advice would be to do all of your retirement planning with about a 70% payout on what they are estimating your monthly payment upon retirement. I am no expert but that is how I would plan. In addition, I would be a little concerned about their projected performance since we are currently experiencing the 8th year in a strong market. That makes the 52% number even a little troublesome.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

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2pedals
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Re: I'm worried about my pension

Post by 2pedals » Sat Feb 09, 2019 2:20 pm

I would be worried too. Many folks working in the private industry have had their projected defined pension plans frozen and/or reduced during their working years. Accumulated pension amounts are not always are sure thing as well if they are underfunded, cities can file for bankruptcy.

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arcticpineapplecorp.
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Re: I'm worried about my pension

Post by arcticpineapplecorp. » Sat Feb 09, 2019 2:40 pm

FinancialRookie wrote:
Sat Feb 09, 2019 1:57 pm
The fund manages $478.7M, but is only currently 52% funded, and projections over the next 5 years has that number dropping to 47% with the implementation of a DROP program. The County has committed to 100% funding by 2044 (politics are no guarantee).
I hadn't heard of the Drop progam so looked it up.
Example of a Drop Benefit:

(Not to undermine the interest rate… BUT If your service retirement benefit is $2,600.00 monthly and you remain in DROP for the maximum four-(4) year period, upon separating from city employment on average without any interest rate calculated you can receive about $124,800.
source: https://www.dc47union.org/details-about ... 2187-2186/
If you take $2600 X 48 months you get $124,800. So is the Drop program saying you still get a $2600/month pension PLUS $124,800? If so, then people aren't paying in to the system for 4 years. How is that helping the solvency of the program? Is it that you'd get MORE than $2600 in 4 years if you continued contributing into the plan vs. retiring NOW and only getting $2600? If so, I suppose that could save the pension some money, but I don't see how this helps because you're only getting back what you paid in and that money isn't helping shore up the pension system. Unless I have this totally wrong.
FinancialRookie wrote:
Sat Feb 09, 2019 1:57 pm
The trustees are claiming we have had flat CYTD performance due to the lagging international market, but are using a 7.5% forward expected rate of return. This seems incredibly high to me.
It isn't incredibly high, as compared to most pension plans. But what you could say is it's an unreasonable expectation for returns based on the asset allocation of the pension plan (don't know yours specifically, but typically at current valuations you'd likely have to invest 100% in stocks, and that's not how most plans are structured). So how do they get away with stating higher then probably generated returns? You can get whatever numbers you want if you annualize into perpetuity. Oh and make sure part of your pension invests in hedge funds and alternative investments. That's sure to get you higher returns, right? That was sarcasm Sheldon.
FinancialRookie wrote:
Sat Feb 09, 2019 1:57 pm
I am saving like my pension will not be there, but I am in the vast minority. Recently they increased pension contributions on individuals with >10 years of service time, capturing the highest salaries in the dept which is a good thing. They have also gradually increased contributions for new hires over the years.

I have found it to be hard to find comparable data for similar funds, but how worried should I be about the fund's ability to pay out for the next 60 years?
You're smart to save like your pension won't be there. You can't ever have enough. If you do, you could retire early, right? So that's a win-win. They have changed my state's plan for new employees also, but are offering new options to all, not just newbies to try and entice people out of the pension system (by offering hybrid type plans which are less generous and less guaranteed because a retiree can run a 401k to $0 but not so with a pension which is payable for life).

I think the main thing to look at is what would your monthly or annual amount likely be in retirement? If it's under the amount covered by the PBGC then you should have nothing to worry about. Because in the worse case scenario if the pension fund went bust, wouldn't the PBGC payout the pensions of workers (as long as it's under the max amount insured by PBGC)?
Last edited by arcticpineapplecorp. on Sat Feb 09, 2019 4:24 pm, edited 2 times in total.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

GCD
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Re: I'm worried about my pension

Post by GCD » Sat Feb 09, 2019 2:52 pm

arcticpineapplecorp. wrote:
Sat Feb 09, 2019 2:40 pm
If it's under the amount covered by the PBGC then you should have nothing to worry about. Because in the worse case scenario if the pension fund went bust, wouldn't the PBGC payout the pensions of workers (as long as it's under the max amount insured by PBGC)?
https://www.pbgc.gov/
PBGC doesn't cover governmental plans. If it's a fire dept. plan it's probably a government agency plan.

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arcticpineapplecorp.
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Re: I'm worried about my pension

Post by arcticpineapplecorp. » Sat Feb 09, 2019 4:23 pm

GCD wrote:
Sat Feb 09, 2019 2:52 pm
arcticpineapplecorp. wrote:
Sat Feb 09, 2019 2:40 pm
If it's under the amount covered by the PBGC then you should have nothing to worry about. Because in the worse case scenario if the pension fund went bust, wouldn't the PBGC payout the pensions of workers (as long as it's under the max amount insured by PBGC)?
https://www.pbgc.gov/
PBGC doesn't cover governmental plans. If it's a fire dept. plan it's probably a government agency plan.
wow, I learn something new every day. Thanks. Obviously strike what I said from the record. Better yet, I'll do it myself.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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gmaynardkrebs
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Re: I'm worried about my pension

Post by gmaynardkrebs » Sat Feb 09, 2019 4:44 pm

The problem with some of the public pensions is that they opt out of Social Security, which means that you are in much worse shape if the public plan can't meet its obligations. Also, in some cases, the public pensions have not fared well in bankruptcy (however, that's very much state by state, and the rules I believe are different for municipalities.) Just to be clear, there's absolutely no reason to panic. But with 16 years to go, I would start looking at options. You still have time to get SS. Possibly work part time, just to get to 40 quarters, which is better than nothing.

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Stinky
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Re: I'm worried about my pension

Post by Stinky » Sat Feb 09, 2019 4:54 pm

FinancialRookie wrote:
Sat Feb 09, 2019 1:57 pm

I am saving like my pension will not be there, but I am in the vast minority. Recently they increased pension contributions on individuals with >10 years of service time, capturing the highest salaries in the dept which is a good thing. They have also gradually increased contributions for new hires over the years.

I have found it to be hard to find comparable data for similar funds, but how worried should I be about the fund's ability to pay out for the next 60 years?
You’re wise to save like there’s no pension coming to you. Your pension is scary underfunded.

You mention a 60 year payout in your situation. Given the underfunded position, it would be risky for you to count on the taxpayers of the year 2079 to pay your full pension. Cutbacks in the pension monthly benefit are a distinct possibility.

As other posters mentioned, you’d be wise to get your 40 quarters of coverage for Social Security.
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Grt2bOutdoors
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Re: I'm worried about my pension

Post by Grt2bOutdoors » Sat Feb 09, 2019 4:55 pm

Difference between a public and private plan. A municipality can enact by act of legislative body laws that institute taxes, special assessments, fees and if needed, can raise a bond issue. While 52% is not ideal, if you were PBGC (you’re not), you’d be in the yellow zone. If it drops into the 40% range, red or brink of insolvency/ reduction in benefits without further immediate contributions. There was an example of a town, I believe in California or was it Detroit where the retired members of a fire department had to take a 50% haircut in the value of their monthly pension because the local municipality was bankrupt.
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tarmangani
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Re: I'm worried about my pension

Post by tarmangani » Sat Feb 09, 2019 4:59 pm

Around here, Central Falls went bankrupt and retirees had their pension benefits slashed by over 50%. i can only imagine in the next recession that this will become more common.

As someone far off from retirement, you absolutely must prepare for a worst case scenario. Other people are taking and then "managing" your money and there's nothing you can do about it. Max your 457(b), then a Roth, and then put as much in taxable as you can. I wouldn't count on having that pension at all, never mind its promised benefits.

ShowMeTheER
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Re: I'm worried about my pension

Post by ShowMeTheER » Sat Feb 09, 2019 5:11 pm

I'd encourage you - if you haven't already - to research the current cash flows of the plan. How much is being paid out in benefits per year versus the funding? Of that funding, how much is employees versus taxpayers? Of the taxpayer funding, what is the tax base that exists to fund this plan? This will give you a good sense of the direction that it's heading (and how fast) and the magnitude of the correction that will be needed to keep it cash flow positive. It does sound like it's one that will take emergency action (I.e., tax or major gov't budget change for some years), but they'll kick the can down the road until cash flow and outlook becomes extreme.
Last edited by ShowMeTheER on Sat Feb 09, 2019 5:12 pm, edited 1 time in total.

Carl53
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Re: I'm worried about my pension

Post by Carl53 » Sat Feb 09, 2019 5:12 pm

Grt2bOutdoors wrote:
Sat Feb 09, 2019 4:55 pm
Difference between a public and private plan. A municipality can enact by act of legislative body laws that institute taxes, special assessments, fees and if needed, can raise a bond issue. While 52% is not ideal, if you were PBGC (you’re not), you’d be in the yellow zone. If it drops into the 40% range, red or brink of insolvency/ reduction in benefits without further immediate contributions. There was an example of a town, I believe in California or was it Detroit where the retired members of a fire department had to take a 50% haircut in the value of their monthly pension because the local municipality was bankrupt.
In 2013 the Detroit public pension went under. Got big state and foundation bailout but employees and retirees were hit hard particularly with health care costs and cola adjustments.
https://www.freep.com/story/money/perso ... 759446002/

http://www.michiganradio.org/post/detro ... cipalities

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emlowe
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Re: I'm worried about my pension

Post by emlowe » Sat Feb 09, 2019 5:25 pm

Carl53 wrote:
Sat Feb 09, 2019 5:12 pm
Grt2bOutdoors wrote:
Sat Feb 09, 2019 4:55 pm
Difference between a public and private plan. A municipality can enact by act of legislative body laws that institute taxes, special assessments, fees and if needed, can raise a bond issue. While 52% is not ideal, if you were PBGC (you’re not), you’d be in the yellow zone. If it drops into the 40% range, red or brink of insolvency/ reduction in benefits without further immediate contributions. There was an example of a town, I believe in California or was it Detroit where the retired members of a fire department had to take a 50% haircut in the value of their monthly pension because the local municipality was bankrupt.
In 2013 the Detroit public pension went under. Got big state and foundation bailout but employees and retirees were hit hard particularly with health care costs and cola adjustments.
https://www.freep.com/story/money/perso ... 759446002/

http://www.michiganradio.org/post/detro ... cipalities
She is controlling her expenses in other ways, such as taking one vacation a year, when in the past she might have taken two or three trips

I guess "hit hard" depends on your perspective.

Deblog
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Re: I'm worried about my pension

Post by Deblog » Sun Feb 10, 2019 7:49 am

I would most definitely plan retirement as if health coverage does not exist. My husband works for a state and health care is NOT GUARANTEED by LAW, but pension is. They continue to remind us of that and have been reducing health care retirement. Spouses no longer given discount in retirement, deductibles way up, cost up, years of service higher to qualify, must go to Medicare when 65. Last blog I read from them answered questions and admitted many retired employees could probably get insurance cheaper through exchange if they qualified for subsidy.

riverguy
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Re: I'm worried about my pension

Post by riverguy » Sun Feb 10, 2019 10:52 pm

Deblog wrote:
Sun Feb 10, 2019 7:49 am
I would most definitely plan retirement as if health coverage does not exist. My husband works for a state and health care is NOT GUARANTEED by LAW, but pension is. They continue to remind us of that and have been reducing health care retirement. Spouses no longer given discount in retirement, deductibles way up, cost up, years of service higher to qualify, must go to Medicare when 65. Last blog I read from them answered questions and admitted many retired employees could probably get insurance cheaper through exchange if they qualified for subsidy.
Laws can be changed and they will. They have to be. Most pensions are simply unsustainable and the money is not there from the taxpayer. Lots of pain coming for pensioners in the next downturn.

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gmaynardkrebs
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Re: I'm worried about my pension

Post by gmaynardkrebs » Sun Feb 10, 2019 10:58 pm

riverguy wrote:
Sun Feb 10, 2019 10:52 pm
Deblog wrote:
Sun Feb 10, 2019 7:49 am
I would most definitely plan retirement as if health coverage does not exist. My husband works for a state and health care is NOT GUARANTEED by LAW, but pension is. They continue to remind us of that and have been reducing health care retirement. Spouses no longer given discount in retirement, deductibles way up, cost up, years of service higher to qualify, must go to Medicare when 65. Last blog I read from them answered questions and admitted many retired employees could probably get insurance cheaper through exchange if they qualified for subsidy.
Laws can be changed and they will. They have to be. Most pensions are simply unsustainable and the money is not there from the taxpayer. Lots of pain coming for pensioners in the next downturn.
You are confusing "under-funded" with "unsustainable." Big difference.

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