About those pensions

In 2021 there is only one group of workers who can consistently count on a traditional pension. Interestingly that group is government workers. While the pension is a thing of the past for private workers, it’s still dominate in government employment.

This is a reflection of longevity in employment, politics and the fact government entities are not held accountable for underfunded liabilities.

All this means higher taxes, and taking money from other services for the entire population to pay public pensions. Since these are long-term obligations their cost will affect future generations.

9 comments

  1. “the fact government entities are not held accountable for underfunded liabilities”

    Well, I don’t know about that. There was considerable public uproar here in Hawaii when the pension fund that pays my and my wife’s pensions became underfunded due to the dot-com crash. That fund pays many public workers’ pensions: police, teachers, firemen, legislators, judges. The loss to the fund was big news, and the legislature scrambled to find some remedy. They enacted a package of increased contributions from the various departments of the state, reduced benefits to new state hires. The state pays S&P for s yearly evaluation of the health of the fund.

    Are private pension funds subjected to such scrutiny?

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    1. Private funds must maintain a certain funding level by law or face penalties. They also must pay pension insurance which has higher premiums if funding is not adequate. The IRS imposes an initial 10 percent excise tax on delinquent plan contributions and a 100 percent “second tier” excise tax if the contribution is not made after the 10 percent tax is assessed. Once the 10 percent excise tax is assessed, it is difficult, if not impossible, for many such employers to recover.

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    2. The latest figures show HAWAII state pensions funded at about 55%. No company could get away with that. Such funding level is not due to normal market fluctuations. It is do to poor investment decisions but mostly to underfunding. State politicians make grand promises often egged on by public unions and then find they are too costly and simple ignore the required funding. NJ has done that for decades as have several other states.

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      1. It would have been convenient if you had provided a source for that 55% figure. Possibly the following?

        “According to the fund’s most recent actuarial evaluation, the pension fund started out fiscal year 2020, which began July 1, 2019, with a 55.2% funded ratio and a $14.07 billion funding shortfall, up from $13.41 billion the previous year. The actuarial report also projected that would take 26 years for the pension to become fully funded.” https://www.ai-cio.com/news/hawaiis-public-pension-fund-rises-5-38-q1-fiscal-2021/

        When Hawaii ran into pension fund trouble after the dot-com crash, it produced a plan that the S&P actuaries said should bring the fund to fully funded in 30 years. We seem to be on track for that.

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  2. During my decades long corporate profession, I was blessed to have both a company funded pension and a traditional IRA which the company matched up to 6%. When I early retired, I rolled both into self-directed IRAs.

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  3. Pensions were used in the 40’s and 50’s to attract people to work for the government, which at that time paid badly, in relation to the private sector. Over time, with the rise of public sector unions, wages improved. Private sector pensions began disappearing in the 90’s due to the need for cost savings. The concept of the “loyal long term employee” began to disappear in the private sector. Public sector pensions remain, due to the bargaining strength of the unions. State and local governments have underfunded them due to budget constraints, and in many places they are now imperiled. However, they still remain a viable recruitment tool for governments to compete with the private sector for good employees.

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    1. You are right except on one point which fooled me as well. The long term employee was never the norm except in a few industries. When I checked I found little change in average job tenure over the years. Today with a highly mobile workforce a pension is little value.

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      1. I agree. Portable retirement funds allowed people to leave jobs they hate and keep retirement funds in tact. Being loyal to a company because they control your pension doesn’t always make for the best working conditions.

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