BC Pension Study says they will last 15 years

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ofcmetz
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BC Pension Study says they will last 15 years

Post by ofcmetz » Thu Mar 31, 2011 10:20 am

A study by Boston College on Pension Funding says that in the short term government pensions have enough on hand to pay for an average of 15 years with some exceptions. It looks at two ways to look at how they are funded.

1. Termination - current plan assets and their returns pay accrued benefits. New benefits are payed by future contribution and the returns on future contributions. This method is much more conservative and found that plans would run out between 2023 and 2033 depending on an annual return of 6% or 8%.

2. Ongoing - Current plan assets and future contributions/ earnings are together to cover accrued and future benefits. Plans would run out of money on average between 2025 and 2041 depending on the same assumed annual returns of 6% or 8%.

At the end of the study it lists individual state plans and their dates.

At the end of the conclusion it says, "Just as with private investors, though, the outlook of public pensions is closely tied to the recovery of the economy and the stock market.".

I'm in Louisiana SERS (aka LASERS) so this info is especially interesting to me. Also encourages me to continue to invest as if I won't receive a pension.

Link to the study for those interested:

http://crr.bc.edu/images/stories/Briefs/slp_15.pdf
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Post by Rodc » Thu Mar 31, 2011 10:47 am

Does it say anything like: If pension are reduced by 25% they last until XXXX?

Much like SS, I suspect you will get rather more than nothing, even if less than promised may be likely. Would be useful get a guestimate of what that something might be.

Best of luck.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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ofcmetz
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Post by ofcmetz » Thu Mar 31, 2011 10:58 am

Rodc wrote:Does it say anything like: If pension are reduced by 25% they last until XXXX?

Best of luck.
The study only tries to show how long the pension plans can last without taxpayer intervention based on returns of 6% or 8% annualized returns.

I think with a lot of these plans just like with social security there will need to be a reduction of benefits compromise. What I take from the study is that there is still time.
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Post by Rodc » Thu Mar 31, 2011 11:44 am

ofcmetz wrote:
Rodc wrote:Does it say anything like: If pension are reduced by 25% they last until XXXX?

Best of luck.
The study only tries to show how long the pension plans can last without taxpayer intervention based on returns of 6% or 8% annualized returns.

I think with a lot of these plans just like with social security there will need to be a reduction of benefits compromise. What I take from the study is that there is still time.
Sounds reason able to me.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

jack1719
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Post by jack1719 » Thu Mar 31, 2011 3:12 pm

Pensions are much like social security if you make the young people collect it later,at 70 instead of 67 as an example with SS..it adds decades to its lifespan..

New Pension Tiers for brand new hires/public workers,(and the yet to be hired public worker) have already in many states been changed from 55 to 62.......That makes a huge deal 20 years from now...

I think pension reform is moving along fine..its social security that seems to be stuck in the mud in regard to any changes in it..and that might be its doom.
Last edited by jack1719 on Thu Mar 31, 2011 3:35 pm, edited 2 times in total.

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Post by ruralavalon » Thu Mar 31, 2011 3:31 pm

A quick scan of "Appendix B -- Year of Exhaustion, By Plan" seems to indicate that overall Illinois wins the race toward exhaustion :cry: . The surprise, to me, is that Illinois municipal plans are in the best shape compared to other Illinois gov't plans.
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jack1719
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Post by jack1719 » Thu Mar 31, 2011 3:37 pm

Honestly what scares me more is being a defferred tax 401K investor with the huge Goverment debt that seems to only keep getting bigger and bigger like a balloon,but its gonna reach a point where it cant handle anymore,cuts will never be able to do it alone,taxes will have to be raised significantly,income taxes mainly and all this tax defferred 401K money/investors will be sitting timebombs..

at least I applaud the states for working on the problems and for making changes for new hires..

The goverment/uncle sam continues to blow up debt balloon..it seems to not be able to stop like an addict..

The states have turned a corner and seem to be headed in right direction..uncle sam is still on collison course.

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Post by wellboy » Fri Apr 01, 2011 10:47 am

I have read that article also.

It is scary to see that even with 8% return, most state pension funds run out of money by 2040.

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Post by jack1719 » Fri Apr 01, 2011 11:10 am

wellboy wrote:I have read that article also.

It is scary to see that even with 8% return, most state pension funds run out of money by 2040.
didnt I read Illonis raised taxes like 66% recently?Then I read state got an improvement in fiscal debt outlook and longer term better pension outlook?

The whole key is to get the ball rolling in right direction on slowly making changes,states debt and Pension reform is on right track....

Uncle sam is the problem,the real debt nightmare,that cant control itself.I'm not worried about states,they seem to know what needs to be done and are doing changes.
Last edited by jack1719 on Fri Apr 01, 2011 11:18 am, edited 2 times in total.

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Post by allsop » Fri Apr 01, 2011 11:17 am

jack1719 wrote:
wellboy wrote:I have read that article also.

It is scary to see that even with 8% return, most state pension funds run out of money by 2040.
didnt I read Illonis or was it indiana raised taxes like 66% recently?Then I read state got an improvement in fiscal debt outlook and longer term better pension outlook?

The whole key is to get the ball rolling in right direction on slowly making changes,states debt and Pension reform is on right track....

Uncle sam is the problem,the real debt nightmare,that cant control itself.I'm not worried about states,they seem to know what needs to be done and are doing changes.
http://krugman.blogs.nytimes.com/2011/0 ... and-there/

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Post by jack1719 » Fri Apr 01, 2011 11:19 am

http://capitolfax.com/2011/01/24/fitch- ... is-rating/

Illonis was upgraded in Jan on its debt and pension outlook..

I am sure that 66% tax increase helped alot..as to reason why

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Post by allsop » Fri Apr 01, 2011 11:44 am

jack1719 wrote:http://capitolfax.com/2011/01/24/fitch- ... is-rating/

Illonis was upgraded in Jan on its debt and pension outlook..

I am sure that 66% tax increase helped alot..as to reason why
66% increase based on what amount?

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Post by jack1719 » Fri Apr 01, 2011 12:23 pm

allsop wrote:
jack1719 wrote:http://capitolfax.com/2011/01/24/fitch- ... is-rating/

Illonis was upgraded in Jan on its debt and pension outlook..

I am sure that 66% tax increase helped alot..as to reason why
66% increase based on what amount?
It was already passed back in Jan..
--------------------------------------------
a 66% personal income tax increase..(corporate income-tax increase of 45% also)

is expected to raise about $6.8 billion annually

http://www.csmonitor.com/USA/2011/0112/ ... e-tax-hike

allsop
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Post by allsop » Sat Apr 02, 2011 4:43 am

jack1719 wrote:
allsop wrote:
jack1719 wrote:http://capitolfax.com/2011/01/24/fitch- ... is-rating/

Illonis was upgraded in Jan on its debt and pension outlook..

I am sure that 66% tax increase helped alot..as to reason why
66% increase based on what amount?
It was already passed back in Jan..
--------------------------------------------
a 66% personal income tax increase..(corporate income-tax increase of 45% also)

is expected to raise about $6.8 billion annually

http://www.csmonitor.com/USA/2011/0112/ ... e-tax-hike
From the article it does not seem very dramatic as the increase is from low levels:
By the early hours of Wednesday, Senate and House lawmakers had voted to raise the personal income tax rate from 3 percent to 5 percent and the corporate tax rate from 4.8 percent to 7 percent. Both rates were adjusted to carry through until 2015, when they would drop to 3.25 percent and 5.25 percent, respectively.

jack1719
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Post by jack1719 » Thu Jun 09, 2011 7:10 am

What a difference 2 years can make......

investment gains make up almost 70% of pension funding,between that(very strong market returns of last 2 years) and changes made in last 2 years to brand new hires,it seems the picture looks alot rosier today...

PDF file of most recent very extensive pension study done in March/April 2011 by Cobalt research

http://www.ncpers.org/Files/2011_06_ncp ... _study.pdf

Grt2bOutdoors
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Post by Grt2bOutdoors » Thu Jun 09, 2011 7:59 am

Interesting that the NYC teachers plan is estimated to run out assets in just 6 short years - 2017. I guess that is what happens when you offer fixed rate options paying 7% interest annually and real life fixed income returns are in the ballpark of 4%. Negative amortization will kill you every time.

The sad thing is even with the installation of new tiers - the savings will come far too late to fix the real problem - too much outflow, very little inflow.

I forsee a ton of defaults in the years ahead.

etarini
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Post by etarini » Thu Jun 09, 2011 8:55 am

jack1719 wrote:taxes will have to be raised significantly,income taxes mainly
It's not obvious to me that income taxes will have the biggest increases; there's been a lot of talk about adding a VAT, too.

I don't think we have enough clearly actionable information to justify modifying a portfolio with regard to the proportions of taxable/tax-deferred accounts.

Eric

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Post by Uninvested » Thu Jun 09, 2011 9:07 am

I am afraid this may come out real badly. What if returns are more like the bond market of 3%? Will the public stand for paying all of the state's budgets for health care and pensions of retired workers or will a deal have to be made to cut them? The pressure may get intense because if a state declares bankruptcy (may be impossible now) then the pension debts can be wiped to zero. So eventually our public servants will have to share in the "shared sacrafice" which now is limited to taxpayers.

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Post by midareff » Thu Jun 09, 2011 9:19 am

Quote from Uninvested.

"So eventually our public servants will have to share in the "shared sacrafice" which now is limited to taxpayers."


So, you seem to think that public servants don't pay taxes..... try again on that one.

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Post by jack1719 » Thu Jun 09, 2011 11:50 am

Although media coverage has focused on a handful of troubled funds, most funds are managed responsibly and maintain strong funding levels. On average, funds are 76.1 percent funded and continue to work toward full funding. According to its February 2011 report Enhancing the Analysis of U.S. State and Local Government Pension Obligations, Fitch Ratings considers a funded ratio of 70 percent or above to be adequate. As with a home mortgage, funding levels are designed to slowly be funded over many years. The average amortization period for respondents is 25.8 years.

Funds have been very active in responding to changes in the economic, political and social landscape..

http://www.ncpers.org/Files/2011_06_ncp ... _study.pdf

if You read the study above,..the most recent,extensive study of pensions,There is really no pension problem,sure you have handful of ones underfunded,but as a whole,the vast majority are in fine shape..

The last 2 years between the big stock market gains(which is the biggest source of funding for pensions-almost 70% and changes made for new hires,pensions look much healthier ... Your always gonna have a few dogs in anything...just like if you own TSM as an equity holding,your gonna have few dogs in the fund that dont do well..but it still means as whole the rest can do very well.....

Thats extensive study by Cobalt is almost exactly like my own research,the same conclusions,when I looked at each most recent data on pensions myself..

You cant look at data from 2 years ago,when you look at Calipers pension from 2008-09 its funded only $160 billion...Jan 2011 its $222 Billion..Pensions funds are 35% higher as a whole than 2 years ago.

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Random Musings
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Post by Random Musings » Thu Jun 09, 2011 2:04 pm

This is what happens when government is not for the people. It's amazing how many of them, once they get in, try to move into the public arena.

And don't get me started on unions within the government arena. It's like being held hostage twice.

The easiest way to solve this problem is to reduce payments and be realistic - I don't recall pensions for public firms being guaranteed. Either that, or cut payroll to fund. I see no problem with "company risk" being applied to all......

RM

jack1719
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Post by jack1719 » Thu Jun 09, 2011 2:13 pm

Random Musings wrote:This is what happens when government is not for the people. It's amazing how many of them, once they get in, try to move into the public arena.

And don't get me started on unions within the government arena. It's like being held hostage twice.

The easiest way to solve this problem is to reduce payments and be realistic - I don't recall pensions for public firms being guaranteed. Either that, or cut payroll to fund. I see no problem with "company risk" being applied to all......

RM
Its the brand new hires/workers,the young people(under 30 year olds etc..) that will be the ones who bear the whole brunt..most brand new hires and young people the age to retire/begin collecting has been raised from 55 to 62 for newly hired workers in last couple of years..They are gonna be working many more years to collect that pension..

if you see the Cobalt study..they have graph of changes made in last 2 years for public sector..that seems to be one of the biggest change,raise age to collect pension for brand new hired workers/future hires.

The states seem to be on tract and doing changes that need to be done to pensions over long term to keep healthy and solvent..I'm more worried about social security and uncle sam,thats seems to be stuck in the mud..resistant to any kind of change that needs to be done to keep it on proper footing.

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Post by eriehiker » Thu Jun 09, 2011 3:39 pm

People do need to recognize the changes that have already been made related to public pension systems. New teachers in Michigan - and most state employees - now belong to defined contribution pension plans rather than traditional defined benefit plans. Rules related to purchasing and transferring credits within the system have been tightened. Health subsidies have become less generous, begin at later times than in past years and cost more to current employees. Budget cuts, annual pink slips and reductions in tenure provisions make it much less likely that a teacher will stay in any one district for a long period of time.

And these changes are not limited to Michigan.

Of course, I think that these changes will probably not mollify those who think that public employees, teachers and pensions are evil.

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Post by Valuethinker » Fri Jun 10, 2011 3:19 am

eriehiker wrote:People do need to recognize the changes that have already been made related to public pension systems. New teachers in Michigan - and most state employees - now belong to defined contribution pension plans rather than traditional defined benefit plans. Rules related to purchasing and transferring credits within the system have been tightened. Health subsidies have become less generous, begin at later times than in past years and cost more to current employees. Budget cuts, annual pink slips and reductions in tenure provisions make it much less likely that a teacher will stay in any one district for a long period of time.

And these changes are not limited to Michigan.

Of course, I think that these changes will probably not mollify those who think that public employees, teachers and pensions are evil.
Of course not.

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Post by DaleMaley » Fri Jun 10, 2011 5:36 am

allsop wrote:
jack1719 wrote:
allsop wrote:
jack1719 wrote:http://capitolfax.com/2011/01/24/fitch- ... is-rating/

Illonis was upgraded in Jan on its debt and pension outlook..

I am sure that 66% tax increase helped alot..as to reason why
66% increase based on what amount?
It was already passed back in Jan..
--------------------------------------------
a 66% personal income tax increase..(corporate income-tax increase of 45% also)

is expected to raise about $6.8 billion annually

http://www.csmonitor.com/USA/2011/0112/ ... e-tax-hike
From the article it does not seem very dramatic as the increase is from low levels:
By the early hours of Wednesday, Senate and House lawmakers had voted to raise the personal income tax rate from 3 percent to 5 percent and the corporate tax rate from 4.8 percent to 7 percent. Both rates were adjusted to carry through until 2015, when they would drop to 3.25 percent and 5.25 percent, respectively.
The 66% tax increase is supposedly temporary for 4 years then drops to a 8.3% increase after that. Really sad thing is that my Illinois state government has not taken a single step to significantly cut spending :(
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