State pension funds questions

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am
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State pension funds questions

Post by am » Sun Sep 19, 2010 7:22 am

I am a participant in State Universities Retirement System in Illinois. I am many years from getting any pension/annuity. Have there been failures of systems like this in the past? Also, where does this sit in term of priority for the state to pay? Is there a reasonable chance that this annuity may not be honored when the time comes?

kenbrumy
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Post by kenbrumy » Sun Sep 19, 2010 7:34 am

I am not in any state pension but I don't fully rely on any source of income for my retirement. Your pension could be substantially changed before or after you retire. Social security could be radically altered. I have personally had retirement plans at publicly traded companies terminated and benefits frozen.

Plan on accumulating various sources of assets and diversify yourself appropriately. A state pension is just one type of asset.

As to your question, public pensions have in the past been modified. The few failures have typically been restricted to municipalities. I am not aware of any state "failing" but it's difficult to make predictions -- especially about the future.

SP-diceman
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Re: State pension funds questions

Post by SP-diceman » Sun Sep 19, 2010 8:15 am

am wrote:Have there been failures of systems like this in the past?
Well, there was a thing called "The Romen Empire" a long time ago.



Thanks
SP-diceman

the intruder
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Re: State pension funds questions

Post by the intruder » Sun Sep 19, 2010 8:30 am

am wrote:I am a participant in State Universities Retirement System in Illinois. I am many years from getting any pension/annuity. Have there been failures of systems like this in the past? Also, where does this sit in term of priority for the state to pay? Is there a reasonable chance that this annuity may not be honored when the time comes?
Unlike other states IL has a constitutional provision that protects both past and future retirement benefits of public employees from reduction. What you need to find out is who is ultimately liable for paying benefits, e.g, the universities or the IL taxpayers. If only the universities and not the state or its taxpayers are liable then the benefits will be guaranteed by the plan's assets and the ability of the universities to contribute to the plan. Also the plan could require larger employee contributions to make up any shortfall.

Note: Participants in an ORP/403b/457b dont have this problem because there is no guaranteed benefit. The benefits are based on the account balance.

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DaleMaley
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Post by DaleMaley » Sun Sep 19, 2010 8:39 am

I am also an Illinois resident. My sister and brother are both school teachers and are in the TRS system (versus your SURS university system).

Illinois is broke and has delayed proper funding of the teacher's pension plans for many years.

At some point, something will have to give regarding state funding of defined benefit pension plans.

I believe most teachers have to work about 35 years to get a traditional pension that is 75% of pay and inflation adjusted. Illinois just passed a new law this year requiring new teachers to work to age 67 I think.

You might want to check out the book While America Aged since its 3 examples point out many of the issues involved. We all know about GM, but it also has the City of San Diego and the New York transit system.

As other posters have stated, if you have the time left before retirement age, you should save and invest......versus putting all of your eggs in the state retirement plan.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett

raywax
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Re: State pension funds questions

Post by raywax » Sun Sep 19, 2010 8:49 am

am wrote:I am a participant in State Universities Retirement System in Illinois. I am many years from getting any pension/annuity. Have there been failures of systems like this in the past? Also, where does this sit in term of priority for the state to pay? Is there a reasonable chance that this annuity may not be honored when the time comes?
Might I suggest a better place to ask this question would be at the TIAA-CREF forum at Morningstar.com. However, to post there you need to have an account and I am not sure how that works if all you want to do is to post there. The reason it would be better asked there as the active posters there are mainly academicians and the topic has at least been mentioned there in the past in passing.

Ray

am
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Post by am » Sun Sep 19, 2010 12:18 pm

With SURS, I contributed a certain % of my check every month in the past, and after 5 years they match contributions dollar for dollar. Also, there is a guaranteed rate of growth which is currently 7.5% and was higher when I was in training. As far as I know from the annual reports, there are investable assets that are managed by multiple subadvisors. Therefore I do not think that these assets can be used for any other purpose, but I am not 100% sure. Seems to me like the assets I have in this account are like a AAA++ bond with a long maturity, and this is how I treat it my asset allocation. Please correct me if I am wrong.

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Opponent Process
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Re: State pension funds questions

Post by Opponent Process » Sun Sep 19, 2010 12:24 pm

SP-diceman wrote:
am wrote:Have there been failures of systems like this in the past?
Well, there was a thing called "The Romen Empire" a long time ago.



Thanks
SP-diceman
with the decline of pensions, some are finding themselves living in The Ramen Empire.
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kenbrumy
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Re: State pension funds questions

Post by kenbrumy » Sun Sep 19, 2010 2:05 pm

the intruder wrote:
am wrote:I am a participant in State Universities Retirement System in Illinois. I am many years from getting any pension/annuity. Have there been failures of systems like this in the past? Also, where does this sit in term of priority for the state to pay? Is there a reasonable chance that this annuity may not be honored when the time comes?
Unlike other states IL has a constitutional provision that protects both past and future retirement benefits of public employees from reduction. What you need to find out is who is ultimately liable for paying benefits, e.g, the universities or the IL taxpayers. If only the universities and not the state or its taxpayers are liable then the benefits will be guaranteed by the plan's assets and the ability of the universities to contribute to the plan. Also the plan could require larger employee contributions to make up any shortfall.

Note: Participants in an ORP/403b/457b dont have this problem because there is no guaranteed benefit. The benefits are based on the account balance.
Many states have "constitutionally protected pension benefits." Texas also has this. I'm not going to bother looking up the IL constitution but Texas has amended their constitution over 400 times since 1876 (the year those damn yankees finally left -- per my mother-in-law). I wouldn't consider that "constitutional protection" all that much of a barrier to overcome should the state's finances become dire enough.

I don't want this to degenerate into a political discussion. I am merely restating my original post that you can not depend entirely on a future "maybe." Diversification is the best hope and that may not work either. There are no absolute guarantees in this world except death and taxes. There is certainly no absolute guarantee that those taxes will find their way to you.

jack1719
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Post by jack1719 » Sun Sep 19, 2010 4:57 pm

Pensions are not only protected under state constituation laws but also under US constituation law....

so you have some really solid legal walls in terms of the law

If you wanna go even step further you can look at past legal prescient..You also have binding contract laws..pensions have been ruled as "binding contracts" between parties in numerous cases going back to late 80's and 90's..thats kinda set the status quo on them..and You would have to change the whole defination of what a binding contract is..and that entails so many items in our society and economy..from small stuff cell phone contract to large thing like work contracts and mortgages etc....

I would not worry about pensions with so much legal stone walls behind them..The goverment is not gonna let any large collapse of state occur for what it would do to economy,they have shown that over and over,hence NYC 1970's...California two years ago ...states got $26 billion just several weeks ago from the goverment

the only worry I would have about pensions if the goverment is broke and/or can no longer borrow from credit market and/or freezes up on them and they could no longer support or bail out any of the states..if that happens your proboly more concerned with food and bullets and not pensions at that point anyway..so its mute point..

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