The Truth About The PENSION

Contrary to popular belief, a defined benefit pension is not guaranteed.

Question:

What happens when the amount of retirees in a retirement fund is greater than the amount of members paying into the retirement?

Answer:

The fund looses valued and the recipients (retirees) are forced to take a lower payout.

Example:

The city of Miramar fund is losing money at an alarming rate forcing the city to renegotiate the terms of the pension from 20 and out at 80% to 25 and out at 75%.

The Florida Retirement System has elected to allow members to decide between an investment option and the defined benefit plan in order to reduce the amount of money paid out of the fund annually.


Additionally the funds are managed by private investment companies which answer to an elected pension board that makes decisions about the allocation of investments. A few bad investments or a board member with criminal intent and your defined benefit will resemble employees of Enron and Eastern Airlines. The government will intervene and guarantee a reduced rate of your pension not nearly close to the 80% you thought you would receive.

So if less than 20 % of Americans have a private defined benefit pension does the rest of America live in poverty on social security?

A modest 7% of $1000,000 is 70k per year that you manage and have the option to spend the principle at your leisure in the golden years of your life.

I am neither pro 401(k) or pro pension I will obtain finical independence on my own and have posted this thread to provoke thought, challenge misconceptions, educate, and inform

A pension crisis marked by a growing deficit in the retirement fund has staggered San Diego city government for months. Now, six current and former members of the retirement board face felony conflict-of-interest charges brought by the district attorney. Decisions leading to the pension crisis began in the 1990s.

The pensions crisis is the potential result of insufficient resources being reserved for retirement income as life expectancies rise. As a larger share of the population become reliant on a smaller proportion of the economic active, public and state provision will fall. This is likely to considerably affect the financial prospects of retirees, many of whom are suspected of making insufficient private saving. Solutions to the pensions crisis could include higher taxes, later retirement, or the encouragement or reform of private saving, perhaps under compulsion. Some claim that the pensions crisis does not exist or is overstated, as pensioners in developed countries faced with population ageing are often able to unlock considerable housing wealth and make returns from other investments or employment.

In mid-May, a US bankruptcy judge approved a United Airlines request to transfer its four underfunded major pension plans ($6.6 billion in liabilities) to the Pension Benefit Guaranty Corp. (PBGC). United enters the history books with the largest corporate pension default in the history of the 31-year-old program; it filed for Chapter 11 bankruptcy protection in December 2002.

Despite being one of the beneficiaries of $1.6 billion in pension relief in 2004 (doled out to steel and airlines), US Airways shifted its pension obligations in February. American, Continental, Delta and Northwest are lobbying for additional relief this session. There is also speculation about pension plan solvancy at venerable giants such as General Motors.

Police Pension Report shows serious
shortfall -- Cops should be concerned

IPSN August 28, 1997

THERE’S A GLOSSY, 32-page pension report book making the rounds of Chicago Police Department facilities these days that purports to tell a story of financial stability, sound investment practices and the promise that when Chicago cops are ready to retire, the bucks will be there.


BUT WILL THEY?


SOME OF THE numbers printed in the report suggest that the people who control the fund’s $2.5 billion in assets are conjuring up a smoke-and-mirrors job that attempts to overlook, or at least downplay, the fact that the fund is just under $2 billion short in covering its liabilities for 1996—which is the year of the report.


THE WAY the shortfall looks is this:

Total Obligations $4,311,222,000

Available Assets $2,496,984,990

Funding Shortfall $1,814,237,010


The way pension funds work generally, and the Chicago Police fund works specifically, is that any amount listed as the fund’s total obligation is based on deferred wages earned through the present date—or the date of the pension fund report. In that the $1.8 billion shortfall in the Chicago Police fund is dated December 31, 1996, that’s quite literally the amount the Policemen’s Annuity and Benefit Fund (as the Chicago fund is formally known) owed Chicago police through the end of last year.


NO MATTER what may have happened since the end of last year, the $4.3 billion figure is the amount the pension fund owed its people as of that date. Even if Mayor Daley could somehow replace the entire Chicago Police Department with Andy Frain ushers, the fact remains that the fund owed $4.3 billion to those police—either still on the force or retired—but had only $2.5 billion to pay its debts. The net effect is the Chicago Police pension fund is short some $1.8 billion .


In terms of percentages, the funding status of the Chicago Police fund has only 57.18 percent of its obligations on hand. In personal terms, if a typical Chicago cop owed ComEd $100.00 before they shut off the juice, he or she would have only enough cash on hand to pay $57.18 of the total amount due.


IS THIS good or bad? Is this a serious threat? Is this a situation that anyone should be concerned about, whether they’re already retired or still on the force?


ACCORDING to the fund report itself, “The current funding ratio of 57.18% is considered below normal levels.”


We didn’t invent that 57 percent figure. It’s from the official document. However, earlier this year, Fund Trustee Ken Hauser, writing in his column in the Fraternal Order of Police newsletter, claimed the pension fund had enough money to cover 70 percent of its obligations.


So if Hauser, who has been a Chicago cop since 1968 and a pension fund apologist since 1993, feels the need to inflate the fund’s assets by 13 percent, perhaps that “below normal levels” statement is something to be concerned about.


Revenues for the Chicago Police pension fund come from three different sources:payroll deductions from working cops, employer contributions from the City and profits on investments. If money from any one of these three different sources starts to slip, then the “below normal levels” statement quite quickly becomes something to worry about.


It’s not very likely that either the City or the FOP will ever let working cops voluntarily opt out of the pension fund, so that source of revenue is as good as guaranteed. But the other two—employer contributions and profit on investments—are nowhere near as solid.


We’ve already seen how the guys who run the pension fund can get together with their cronies from the Mayor’s office and, with just a little lunchtime sleight-of-hand, start charging retirees something like $2,300 a year for health insurance premiums. Think about that: a $2,300 a year insurance bill is exactly the same as a $2,300 reduction in pension benefits, which is what is currently happening to Chicago’s retired cops and their spouses.


SO MUCH FOR the unwavering stablilty of employer contributions. Also, it should be noted that the City managed to reduce its annual contribution to the fund between 1995 and ‘96 by $1,531,587. And, during that same one-year period, guess what happened to the employee contribution figure. It was increased by $3,137,723.


Also, Watson Wyatt & Company, an outside actuarial firm that the pension fund hires to go over its books, discovered an “administrative lag” in the amount of money the City contributes to the fund. According to state law, the employer is required to contribute at least $2.00 for every $1.00 that is put into the fund by working cops. But, because the fund has been steadily slipping over the years in its precarious attempt to remain solvent, a City contribution of $3.20 for every $1.00 put up by police “is needed to adequately fund the system,” Watson Wyatt concluded.


Further, as more Chicago Police functions are privatized (remember when the CPD used to operate its own world-class Crime Lab?), it follows automatically that employer contributions to the pension fund will decrease. In fact, the pension fund report points out that the last increase in the rate of employer contributions took place in 1982—or 15 years ago. So don’t look for the City to come rushing in to wipe out the pension fund’s liability shortfall anytime soon.


AND THAT THIRD source, profit on investments, is that really money we can take to the bank? The answer would be an unequivocal yes if every year were as strong as 1996. In ‘96, the Chicago Policemen’s Annuity and Benefit Fund realized a record income level of $504 million, which was up from the relatively modest profit level of $146 million in 1995. But for the previous five years, the fund’s profit on investments averaged only $122 million, which is just a little over half of what its expenses for 1996 were.


So, a $500 million year is great when it happens, but it’s so out of the ordinary that it should not be expected to happen again. For the Chicago police pension fund to earn half-a-billion one year, then repeat that same neat trick the next time out would be something akin to the Cubs winning the World Series one year, then coming right back and hitting the same kind of home run season the next. It just aint gonna happen.


ACCORDING TO the 1996 Report of the Policemen’s Annuity and Benefit Fund, which features colorful graphics of the American flag, the City of Chicago flag and the State of Illinois flag on its glossy cover, “The Fund’s 1996 return of 13.8% exceeded that of its performance benchmark by a healthy margin.”


To use the word “healthy” in any description of a pension fund that is less than 60 percent solvent is one of those Alice in Wonderland kind of statements that only a Richie Daley or the FOP’s Bill Nolan can be expected to try to get away with.


This is a fund that has 65.2 percent of its assets invested in the stock market and another 30.3 percent tied up in bonds. That means that the $2.5 billion referred to above is not actually in the form of money. About $1.5 billion of it is trading in the same common stocks that have been steadily rising in value in recent years, but are overdue for a market “adjustment” of near-crash proportions. As recently as Friday, August 14th, the Dow Jones Industrial Average lost 247 points, or 3 percent of its value.


The Chicago Sun-Times headlined that multi-billion dollar loss in stock value as the “Worst dip for Dow since ‘91.”


We’re not trying to suggest that the stock market is going to collapse in the next day or so, but we do think that anytime investors lose 3 percent of their assets in one day, that some serious financial re-thinking is called for.


If the Chicago Police pension fund is already operating at less than 60 percent of its overall obligation—which means it’s more than 40 percent in debt before it sends out its first pension check each month—how many such 3 percent stock market hits can it take before it’s wiped out?


Also, the so-called “safe” bond market investments that 30.3 percent of the Chicago Police fund is invested in can use a little scrutiny. In actual fact, although bond investments are always claimed to be less volatile that stock market gambles, are they really?


THE PEOPLE who invested something like $30 billion in Orange County, California bonds are still standing in line to get paybacks of maybe ten cents on the dollar as a result of that “super-safe, super-rich” County’s bankruptcy filing last year. Earlier, bond buyers who thought investing in paper issued by a Pacific Northwest utility company would be a great way to clip coupons were rudely awakened when that power company blew a financial fuse of multi-billion dollar proportions.


Closer to home, the individuals and pension funds that put money into the original Calumet Skyway—now operated as the Chicago Skyway—have yet to see anything remotely resembling a profit on their bond investments.


SO WHAT can the typical cop on the beat do? First, don’t buy into the puff stuff that people like Walter Knorr, the pension fund president and Kenneth Hauser, the rank-and-file representative give off like sheep expelling gas.


Find out when the next FOP membership meeting will be and raise some basic pension fund questions.


Or, call the pension fund offices down the street from City Hall to find out when their next public meeting will be, and be there.


OR BETTER YET, call Joe Longmeyer at the Combined Counties Police Association.


Maybe it’s time for some outside agency to raise such basic questions as:


When Chicago cops retire, will their pension fund be there?

Well said

I made $ 4.00 is my 401(k) today well on my way to retirememnt.

Believe It

Let's face it. There will never be any reason that the TRIBE will want to pay an Officer for the rest of his retirement days (It's too close to receiving a dividend check).

The best that we can hope for is an increase in the 401K. We need to PUSH for a 15%-25% contibution from the tribe, not a pathetic 5% (WHAT A JOKE). If an officer decides to leave at anytime, they will be able to take it with them. ALL OF IT.

PLEASE remember, if we were to get a defined pension today & 10 years from now the tribe decides to cancel it, what's there to stop them. This is the reason they could never obtain FRS. TOO many restrictions that the tribe could not handle. They were not able to CONTROL the FRS, the way the can control your wanted PENSION.

HELL YEAH, I would love a defined pension, but it's too scary from this place. I don't have any plans on leaving anytime soon & just hope for the best!

GOOD LUCK TO ALL OF US...

Let's face it. There will never be any reason that the TRIBE will want to pay an Officer for the rest of his retirement days (It's too close to receiving a dividend check).

The best that we can hope for is an increase in the 401K. We need to PUSH for a 15%-25% contibution from the tribe, not a pathetic 5% (WHAT A JOKE). If an officer decides to leave at anytime, they will be able to take it with them. ALL OF IT.

PLEASE remember, if we were to get a defined pension today & 10 years from now the tribe decides to cancel it, what's there to stop them. This is the reason they could never obtain FRS. TOO many restrictions that the tribe could not handle. They were not able to CONTROL the FRS, the way the can control your wanted PENSION.

HELL YEAH, I would love a defined pension, but it's too scary from this place. I don't have any plans on leaving anytime soon & just hope for the best!

GOOD LUCK TO ALL OF US...

Hey look!! It's a person who actually makes sense!! Without a union a pension is worthless. Since there will never be a union there should never be a pension. If we did have a pension we could still be fired for any reason on any given day which would leave us high and dry. At least with the 401K we know we have something that will always be ours. I definitely agree that the tribe should raise the 401K contribution to at least 15%. As you said, 5% contribution is a complete joke.

I LOVE MY 401(K)

South Florida Sun-Sentinel.com
Broward County cities face $1.1 billion pension shortfall
As markets tumble, it is getting even harder to cover pensions that were sweetened during better times
By Jennifer Gollan

South Florida Sun-Sentinel

October 28, 2008

As the housing market surged and tax revenues poured in over the past decade, 19 municipalities in Broward used some of the extra cash to sweeten employee pensions. They boosted payouts, lowered the age to qualify or granted annual cost of living increases, according to a Sun Sentinel investigation.

Then the housing market tumbled, followed by the economy, and mandated property tax cuts kicked in, leaving a gap of at least $1.1 billion between what those cities promised their current and future retirees and the money set aside in their pension funds.

If the market fails to rebound significantly as those payments come due, these municipalities will have to cut public services, borrow or ask taxpayers for more.

"In Broward, and the nation, [using tax windfalls to boost benefits] was a common phenomenon. You had tremendous investment returns," said Chris Wallace, who works for New Community Strategies, a Davie-based financial consultant for local governments. "They overlooked the long-term costs."

Pensions generally fall into two categories.

In one, the payout varies, depending on contributions made by the employee, municipality or both, plus gains or losses in the market. The other provides a guaranteed monthly payment based on an employee's salary, age, service and other factors. In these, money is invested, and if the returns fall short, taxpayers make up the difference.

The 19 municipalities facing shortfalls each offer some employees guaranteed pensions. They are Coral Springs, Cooper City, Dania Beach, Davie, Deerfield Beach, Fort Lauderdale, Hallandale Beach, Hollywood, Lauderhill, Lighthouse Point, Miramar, Oakland Park, Parkland, Pembroke Pines, Plantation, Pompano Beach, Sunrise, Tamarac and Wilton Manors.

Their combined shortfall was $1.1 billion as of Oct. 1, 2007, from the most recent figures available, and doesn't even reflect the effect of the current market meltdown. Already, the gap is 30 times as great as what those cities faced in 2000 — driven by inflation, benefit enhancements during flush times, and poor market returns. It is too early to tell how the recent market gyrations will ultimately influence the problem.

Unions have lobbied hard over the years for more compensation, said Miramar Human Resources Director Phil Rosenberg, and "one of the focuses of the last decade has been increases in pension benefits."

Pembroke Pines Mayor Frank Ortis blamed Wall Street, not the unions, for the problem.

"A lot of it is about investments doing poorly," said Ortis, whose city faces a $156.8 million shortfall.



Cutting back
Some cities are taking steps to control benefit costs. For example, Miramar last year became the first city in the state to negotiate a "two-tier" system with city police. Officers hired before October 2008 can work 20 years and retire on 80 percent of their salaries. Officers hired after that date must work 25 years to retire on 75 percent of their salaries.The city now intends to negotiate a similar deal with firefighters, and next year, with city managers.

"If you do nothing, then the costs are going to grow and grow," Rosenberg said.

Hollywood, which is $311.3 million short of funding all its pensions, is also seeking union concessions. Yet earlier this year it doled out 110 bonuses of $26,000 to retired firefighters under a provision of their contract that distributes extra payments when the pension fund performs well in a given year – in this case, last year, before the market tanked.

"The bonuses have definitely worsened the situation," said Hollywood Commissioner Beam Furr. "I don't think everybody understood how expensive they were."

Fort Lauderdale, facing a $207.5 million gap, last year won union concessions to close the General Employees' Retirement System to workers hired after Oct. 1, 2007. Instead, they are enrolled in benefit programs that do not offer guaranteed payments."I wasn't happy," said John Sherman, who heads the negotiation team for the International Brotherhood of Teamsters, Local 769. "One of the attractions of city jobs are the benefits. Now those have started to disappear."


Underpaid?
Some cities argue they must increase benefits because "our salaries are not comparable to the private sector," said Lauderhill Finance Director Kennie Hobbs. "So pensions play a large role in attracting and retaining qualified employees."

Two years ago, his city introduced a cost-of-living increase of 1 percent annually for firefighters, and up to 3 percent annually for managers.

But there is widespread disagreement among benefits experts about how private and public salaries compare.

In Florida, local government workers earn an average of $42,570 annually, compared with $38,945 for private sector employees, according to 2007 Bureau of Labor Statistics data.

In Parkland, commissioners last year approved a plan that increased pension payouts for four current and retired police officers. In addition, the officers now have to work only 20 years instead of 25 to qualify.

"This is a struggle for us, and we may have to borrow $1.2 million to fund it," said Finance Director Barbara Hastings.

Nevertheless, Commissioner Jay Smith praised the decision because "these officers are out there putting their lives on the line for us."

Stuart Reinfeld, 49, an attorney who lives in Parkland, scoffed at that notion.

"The problem with the government is that when times were good, everyone took it for granted and pumped up their pensions," he said. "I have to subsidize my own pension. We are taxed so much as it is; I don't think the taxpayers should have to pay more."

Jennifer Gollan can be reached at jgollan@SunSentinel.com or 954-385-7920.

Copyright © 2008, South Florida Sun-Sentinel