Archive for the 'Pensions' Category Page 2 of 12

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Battle Looms Over Huge Costs of Public Pensions

Posted on August 10, 2010 by Jason

The New York Times, August 6th, 2010

There’s a class war coming to the world of government pensions.

The haves are retirees who were once state or municipal workers. Their
seemingly guaranteed and ever-escalating monthly pension benefits are
breaking budgets nationwide.

The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts
have taken a real beating in recent years and are not guaranteed. And
soon, many of those people will be paying higher taxes or getting fewer
state services as their states put more money aside to cover those
pension checks.

At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.

The figure comes from a study
by the Pew Center on the States that came out in February. Pew
estimated a $1 trillion gap as of fiscal 2008 between what states had
promised workers in the way of retiree pension, health care and other
benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large.

So a question of extraordinary financial, political, legal and moral
complexity emerges, something that every one of us will be taking into
town meetings and voting booths for years to come: Given how wrong past
pension projections were, who should pay to fill the 13-figure financing
gap?

Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.

Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year.

This sort of thing just isn’t done. States have asked current workers to
contribute more, tweaked the formula for future hires or banned them
from the pension plan altogether. But this was apparently the first time
that state legislators had forced current retirees to share the pain.

Read more of this article.

In Budget Crisis, States Take Aim at Pension Costs

Posted on June 21, 2010 by Jason

The New York Times, June 19th, 2010

Many states are acknowledging this year that they have promised pensions
they cannot afford and are cutting once-sacrosanct benefits, to appease
taxpayers and attack budget deficits.

Illinois raised its retirement age to 67, the highest of any state, and
capped public pensions at $106,800 a year. Arizona, New York, Missouri and
Mississippi will make people work more years to earn pensions. Virginia
is requiring employees to pay into the state pension fund for the first
time. New Jersey will not give anyone pension credit unless they work at
least 32 hours a week.

“We can’t afford to deny reality or delay action any longer,” said Gov.
Pat Quinn of Illinois, adding that his state’s pension cuts, enacted in
March, will save some $300 million in the first year alone.

But there is a catch: Nearly all of the cuts so far apply only to
workers not yet hired. Though heralded as breakthrough reforms by state
officials, the cuts phase in so slowly they are unlikely to save the
weakest funds and keep them from running out of money. Some new rules
may even hasten the demise of the funds they were meant to protect.

Lawmakers wanted to avoid legal battles or fights with unions, whose
members can be influential voters. So they are allowing most public
workers across the country to keep building up their pensions at the
same rate as ever. The tens of thousands of workers now on Illinois’s
payrolls, for instance, will still get to retire at 60 — and some will
as young as 55.

Read more of this article.

Retirement Calculator:  If your pension finds itself modified (as those of Colorado have been), where will that put you overall?  Our Retirement Calculator can be used to determine those very things.

Retirement Just Got a Little Harder

Posted on May 25, 2010 by Jason

The New York Times, May 18th, 2010

If retirement planning has grown more complicated and time consuming,
it’s because life itself is like that.

Life spans are longer than ever, stretching out retirements many more
years, and before the stretching begins, many of us live in more places
and hold more jobs through our careers than in the past. Each of these
developments can make it harder to set aside enough money for retirement
or even to know what enough will be.

Governments and employers are having trouble getting by, too, as recent
events in Europe make clear. That threatens to add another layer of
complexity and uncertainty for individuals and families that had counted
on those institutions.

With few exceptions, the state and occupational pension systems that we
continue to pay into will not leave us high and dry, financial planners
say. But they may leave us short when it comes to financing a
comfortable retirement, so it’s up to us to make up the difference.

“Liability for pension provision is going to fall unavoidably on the
shoulders of virtually every man and woman on the planet,” said Bill
Blevins, managing director of Blevins Franks International, a large
London firm of financial advisers. “Governments can’t afford to do it at
a time when populations are aging and there are fewer people paying the
bills. It’s quite a conundrum.”

Specialists on retirement benefits speak of three pillars. State
pensions compose the first; occupational pensions, the type provided
through employers or trade unions, are the second, and personal savings
make up the third.

The first pillar is a bit wobbly these days, with population growth
slowing in many countries, leaving fewer workers to pay for current
retirees’ benefits. Then there is the recent — or is it continuing? —
economic crisis, which has raised debt loads to uncomfortable levels.

Read more of this article.

Europeans Fear Crisis Threatens Liberal Benefits

Posted on May 24, 2010 by Jason

The New York Times, May 22nd, 2010

Across Western Europe, the “lifestyle superpower,” the assumptions and
gains of a lifetime are suddenly in doubt. The deficit crisis that
threatens the euro
has also undermined the sustainability of the European standard of
social welfare, built by left-leaning governments since the end of World
War II.

Europeans have boasted about their social model, with its generous
vacations and early retirements, its national health care systems and
extensive welfare benefits, contrasting it with the comparative
harshness of American capitalism.

Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have
also translated higher taxes into a cradle-to-grave safety net. “The
Europe that protects” is a slogan of the European
Union.

But all over Europe governments with big budgets, falling tax revenues
and aging populations are experiencing rising deficits, with more bad
news ahead.

With low growth, low birthrates and longer life expectancies, Europe can
no longer afford its comfortable lifestyle, at least not without a
period of austerity and significant changes. The countries are trying to
reassure investors by cutting salaries, raising legal retirement ages,
increasing work hours and reducing health benefits and pensions.

“We’re now in rescue mode,” said Carl Bildt,
Sweden’s foreign minister. “But we need to transition to the reform
mode very soon. The ‘reform deficit’ is the real problem,” he said,
pointing to the need for structural change.

The reaction so far to government efforts to cut spending has been
pessimism and anger, with an understanding that the current system is
unsustainable.

In Athens, Aris Iordanidis, 25, an economics graduate working in a
bookstore, resents paying high taxes to finance Greece’s bloated state
sector and its employees. “They sit there for years drinking coffee and
chatting on the telephone and then retire at 50 with nice fat pensions,”
he said. “As for us, the way things are going we’ll have to work until
we’re 70.”

In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply
pessimistic about his pension. “It’s going to go belly-up because no one
will be around to fill the pension coffers,” he said. “It’s not just
me; this country has no future.”

Read more of this article.

Padded Pensions Add to New York Fiscal Woes

Posted on May 24, 2010 by Jason

The New York Times, May 20th, 2010

In Yonkers, more than 100 retired police officers and firefighters are
collecting pensions greater than their pay when they were working. One
of the youngest, Hugo Tassone, retired at 44 with a base pay of about
$74,000 a year. His pension is now $101,333 a year.

It’s what the system promised, said Mr. Tassone, now 47, adding that he
did nothing wrong by adding lots of overtime to his base pay shortly
before retiring. “I don’t understand how the working guy that held up
their end of the bargain became the problem,” he said.

Despite a pension investigation by the New York attorney general, an
audit concluding that some police officers in the city broke overtime
rules to increase their payouts and the mayor’s statements that future
pensions should be based on regular pay, not overtime, these practices
persist in Yonkers.

The city has even arranged for its police to put in overtime as flagmen
on Consolidated
Edison construction sites. Though a company is paying the bill, the
city is actually reporting the work as city overtime to the New York
State pension fund, padding future payouts — an arrangement at odds with
the spirit of public employment, if not the law.

The Yonkers experience shows how errors, misunderstandings and wishful
thinking are piling hidden new costs onto New York’s public pension
system every year, worsening the state’s current fiscal crisis. And the
problem is not just in New York. Public pension costs are ballooning
everywhere, throwing budgets out of whack and raising the question of
whether venerable state pension systems are viable.

In fact, the cost of public pensions has been systemically
underestimated nationwide for more than two decades, say some analysts.
By these estimates, state and local officials
have promised $5 trillion worth of benefits while thinking they were
committing taxpayers to roughly half that amount.

The use of public money for outsize retirement pay really stings when
budgets don’t balance, teachers are being laid off, furloughs are being
planned and everything from poison-control centers to Alzheimer’s day
care is being cut, as is happening in New York.

Read more of this article.

3 Ways Retirees Can Guarantee Income for Life

Posted on May 7, 2010 by Jason

US News & World Report, May 6th, 2010

Many Americans approaching retirement are concerned that their
savings won’t last the rest of their life. The risk that seniors will
outlive their assets has heightened as longevity continues to increase.
Couples, both currently age 62, have a 47 percent chance that at least
one of them will live to age 90 or older. Life expectancy at age 65 has
risen by about 2 years for women and nearly 4 years for men since 1970.
Americans interested in guaranteeing that their money will last
as long as they do have several options. A new Government
Accountability Office (GAO) report outlines
three ways to make sure you have income that lasts the rest of your
life. Here are your options for securing lifetime income.

[Use our Mutual Fund Score
to find the best investments for you.]

Traditional pensions. Workers who receive
traditional pensions can choose to receive their benefits as payments
throughout their life. About 32 percent of households had a traditional
pension in 2007 with an average pension income of $19,500, according to
the IRS. Pension benefits are insured by the federal government up to
certain annual limits, even if the former employer goes out of business.
However, many workers with traditional pensions elect to take their
benefits as a lump sum instead of payments throughout their lifetime.
When the lump sum option is selected there is not a guarantee that the
money will last the rest of your life.

[See 7
Retirement Risks You Need to Prepare For.]

Annuities. Retirees with a significant amount of
savings can use some or all of it to purchase an annuity, a financial
product sold by insurance companies
that pays out income for life. Only about 6 percent of households
owned individual annuities in 2007 and just 3 percent were fixed
immediate annuities – products designed only to provide lifetime income,
according to the Federal Reserve.

Annuities offering lifetime income generally provide retirees with
more income than they would receive from conservative investments, such
as bonds, GAO found. For example, a $100,000 annuity purchase in April
2010 might provide $6,480 per year as long as the purchaser or their
spouse is alive. That income is 25 percent higher than the $5,200 of
income that would be generated by a highly rated $100,000 30-year
corporate bond. However, in the case of the bond investment, the
principal amount of the bond would still be available in 30 years or to
pay for a large unplanned expense. The original value of the annuity
would generally not be available to the purchaser again without penalty.

Read more of this article.

Annuity advice for retirement:  The GAO’s findings concerning annuities show that you can receive more from an annuity than from a traditional bond, though we at NewRetirement wish to stress that A:  Bonds retain their principal amount, unlike most annuities, and B:  Most retirees invest only a percentage of their savings in bonds, not the total amount.  Nevertheless, Annuities are becoming a more and more popular method of guaranteeing retirement income.  Consider the options at NewRetierement.com

Social Security Optimization:  At NewRetirement, you can learn how to select the proper strategy for Social Security that will maximize your payments, which can be a big help in retirement.

Schwarzenegger backs plan to reform state pensions

Posted on April 22, 2010 by Jason

San Francisco Chronicle, April 21st, 2010

Gov. Arnold Schwarzenegger on Wednesday announced his support for a
legislative proposal to reform the pensions of state workers, saying the
changes are necessary to avoid a future budget calamity.

Pension reform was among the priorities he targeted in January, the
beginning of his final year in office. The bill mirrors changes he
suggested last summer.

Schwarzenegger said the pension system’s unfunded liabilities
represent the single biggest threat to California’s fiscal health.

“I refuse to pass this crisis on to the next governor or the next
Legislature,” Schwarzenegger said. “Because if you don’t act, if you
continue to sweep those problems under the rug, you’re just going to be
piling on more and more debt onto our children and grandchildren.”

As of July 2008, California’s two major pension funds estimated their
unfunded liabilities at $61 billion.

The Republican governor joined the bill’s author, Senate Minority
Leader Dennis Hollingsworth, R-Murrieta, at a news conference in the
Capitol.

The legislation would adjust the pensions of newly hired state
workers but leave benefits intact for current employees. It also would
require most new state employees to work 10 years longer — until age 65 —
before being eligible for retirement benefits and would increase the
amount employees must contribute toward their retirement.

Public safety employees, including firefighters and highway patrol
officers, have a current retirement age of 50 but would have to work
seven years longer to qualify for full retirement benefits under the
bill.

They receive better retirement benefits packages than other
employees, in part because of the risks they face on the job.

Some state workers such as milk inspectors and billboard inspectors
are currently classified as safety workers. The bill would reclassify
them as industrial employees, reducing their benefits.

Read more of this article.

Retirement Calculator:  Are you a retired or retiring public sector employee whose pensions are being affected?  If so, you might want to consider how this will affect your retirement.  You can use our Retirement Calculator to find out where you stand.

Pension reform: another election issue that will influence political races this year

Posted on March 16, 2010 by Jason

San Francisco Examiner, March 15th, 2010

While healthcare reform is going to be a major issue in elections this
year, there is another issue that may be just as powerful if not more
so-particularly at the local level. The healthcare debate will impact
U.S. Congressional races across the country, and there may be some
trickle down the ballot to state and local elections.

Much more potentially damaging to incumbents is the issue of pension
reform. I attended a town hall meeting last night in Towson sponsored by
Americans
for Prosperity. The subject was pension reform. This is an issue
that could prove disastrous to incumbents, if they choose to ignore it.

Most of the town hall focused on Baltimore County, but the speakers
noted that this is not a situation isolated to the County. The issue of
elected officials’ pension hit widespread consciousness with two recent
incidents.

First, convicted and disgraced former Mayor Sheila Dixon, as part of her
plea deal was allowed to keep her $83,000
a year pension, despite being found guilty by a jury of her peers
of stealing while in office. Second, Baltimore County Councilman Vincent
Gardina announced that he would not seek re-election in 2010. At that
time, it was published that he would begin receiving a pension at age
55, $54,000 a year for the rest of his life.

Some points about the Baltimore County Council and Executive pensions:

1. County Council is a part-time position, requiring an average of 1,000
hours per year, some members will work more and some will work less. By
contrast, someone who works forty (40) hours per week with two weeks
vacation will have worked 2,000 hours per year.

2. County Council salary was $38,500 in 1998, and now it is $54,000, a
forty percent (40%) increase twelve (12) years later. Then, if you are
elected by the rest of the Council to serve as Council President for a
year, you receive an extra $6,000 for that year ($60,000 total for the
year). Gardina has been quoted as saying that $54,000 is not enough for this part-time job.

Read more of this article.

NewRetirement Retirement Calculator:   Assess the state of your pension in regards to your retirement plans at NewRetirement.com

Eight States Have Shortchanged Pensions, Pew Study Finds

Posted on February 24, 2010 by Jason

The New York Times, February 17th, 2010

Eight states have been given failing scores for their pension
management under a new grading system developed by the Pew Center on
the States, which also found a $1 trillion gap between what all 50
states have promised their workers and what they have set aside.

The Pew center said on Wednesday
that Alaska, Colorado, Illinois, Kansas, Kentucky, Maryland, New Jersey
and Oklahoma had, in essence, failed its new test because they made no
meaningful progress on keeping their retiree benefit plans sound. The
worst case was Illinois, with a $54 billion gap between the cost of the
benefits it had promised to pay retirees over the next 30 years and the
amount it had set aside.

“Recessions and investment losses played
smaller roles in the creation of this problem,” said Susan K. Urahn,
the center’s managing director. “To a significant degree, the $1
trillion gap reflects states’ own policy choices and lack of
discipline.”

The center based its measurements on data provided
by the states as of June 30, 2008 — the most recent generally available
— so any changes made since then would not have been factored into the
scoring.

The data also did not capture the worst of the market
crash, which occurred in the fall of 2008. Ms. Urahn said that as a
result, the $1 trillion figure probably understated the problem.

By
devising a simple scoring system for state pension funds, the Pew
center was adding a new layer to the analysis now done primarily by
credit rating agencies like Moody’s and Fitch.
The agencies have increasingly tried to take stock of public retirement
plans when rating how likely each state will be to pay its bonds.

Pension
plans have grown so large and costly in some places that they can
compete with bondholders for scarce state dollars. But ranking them is
notoriously difficult because no two state pension systems are
identical, and the variations can make comparisons extremely
misleading.

Read more of this article.

NewRetirement Retirement Calculator:   Pensions are nowhere near as common as they used to be, and concerns are growing about the ability of state and local agencies to pay off their pension obligations.  Accordingly, it might be a good time to re-evaluate your retirement strategy with the NewRetirement Retirement Calculator.

Study: States must fill $1 trillion pension gap

Posted on February 18, 2010 by Jason

Yahoo News, February 18th, 2010

States may be forced to reduce benefits, raise taxes or slash government services to address a $1 trillion funding shortfall in public sector retirement benefits, according to a new study that warns of even more debilitating costs if immediate action isn’t taken.

The Pew Center on the States released a survey Thursday of state-administered pension plans, retiree health care
and other post-employment benefits in all 50 states that blamed a
decade’s worth of policy decisions for leaving them shortchanged.

The result for some states will be “high annual costs that come with significant unfunded liabilities, lower bond ratings, less money available for services, higher taxes and the specter of worsening problems in the future,” the study said.

The
cost of the trillion-dollar shortfall, which will be paid over the
coming decades, is about $8,800 for each American household. The study
did not include many city, county and municipal pension plans, which
are thought to have similar underfunding.

“We
have a significant problem now, but it’s a problem that can be solved
by taking relatively modest steps,” said Susan K. Urahn, the center’s
managing director. “If they don’t do anything, if they wait, eventually
they will have an unmanageable crisis on their hands.”

As
of 2008, states had $2.4 trillion to meet $3.4 trillion in promised
pension, health care and other post-retirement benefits, according to
the report.

The true gap may even be wider,
because the study did not account for the full impact of investment
losses in late 2008, during the stock market downturn, and because many
plans employ multiyear smoothing techniques to lessen the effect of a
single year’s losses. But more recent stock market returns could help — on Wednesday, for example, Pennsylvania‘s $47 billion public school pension plan reported it had earned about 12 percent on investments in the 2009 calendar year.

Read more of this article.

NewRetirement
Retirement Calculator:  Whatever the status of your pension, it might be a good idea to look at how your retirement benefits will integrate with the rest of your retirement plan.  Consider using the NewRetirement Retirement Calculator to do so.

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