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Looking on the bright side

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* I jumped in toward the end of a Twitter argument the other day…


TRS today moved to strip Hastert of his $16,622/yr teachers pension. His total contribution over 16 yrs was $16,327. Total payout: $237,045.

— Dave McKinney (@davemckinney) April 27, 2016

Again showing it's taxpayers who pay the vast majority of pensions https://t.co/1ojfYjl98A

— Dan Mihalopoulos (@dmihalopoulos) April 28, 2016

@dmihalopoulos No, shows the universe's most powerful force is compound interest. Try 16k at 7% over 35 yrs. Then add employer contribution.

— Anders Lindall (@alindall) April 28, 2016

@alindall 7% annual growth guaranteed? Did your pension fund invest in Uber?!

— Dan Mihalopoulos (@dmihalopoulos) April 28, 2016

@dmihalopoulos TRS target return is 7.5% so I was being conservative.

— Anders Lindall (@alindall) April 28, 2016

@alindall my 401k misses target, I lose. Your fund misses target - I lose again. You don't.

— Dan Mihalopoulos (@dmihalopoulos) April 28, 2016

@dmihalopoulos Without question, 401(k)s are a failure & dearth of defined-benefit pensions is causing retirement crisis in this country.

— Anders Lindall (@alindall) April 28, 2016

@dmihalopoulos but that wasn't your initial point.

— Anders Lindall (@alindall) April 28, 2016

@dmihalopoulos further aside — you have Social Security; IL teachers, fire fighters, police, Chicago and Cook retirees aren't eligible.

— Anders Lindall (@alindall) April 28, 2016

@alindall a promise is a promise. Get it. But just once I'd like to hear u admit or appreciate what taxpayers put in. Good night

— Dan Mihalopoulos (@dmihalopoulos) April 28, 2016

@dmihalopoulos and teachers, fire fighters et al would like to hear pundits admit that public service workers pay taxes too.

— Anders Lindall (@alindall) April 28, 2016

@alindall who ever denied that? Nobody. Total red herring

— Dan Mihalopoulos (@dmihalopoulos) April 28, 2016

@dmihalopoulos @alindall Um, yes, you kinda did. "Your fund misses target - I lose again. You don't."

— Rich Miller (@capitolfax) April 28, 2016

@capitolfax @alindall pt was workers guaranteed pensions whether investments make 7% or not. "Employer" makes up difference if not

— Dan Mihalopoulos (@dmihalopoulos) April 29, 2016


* And that exchange apparently resulted in a column entitled “Left wing’s feathers ruffle too easily”

The most sacred cow for the progressives of Chicago and Illinois appears to be the future of government pensions.

We can disagree on how we got here, but we all know the finances of City Hall, the Chicago Public Schools, state government and other local taxing bodies are in utter ruin. It’s a mess as severe as anywhere in the developed world right now except maybe Detroit, Puerto Rico and my ancestral homeland of Greece.

Progressive public-employee unions can spin the pension debate with terms such as “increased employer contributions” and “revenue enhancement.” Still, there’s no getting around the fact that government workers, including teachers, will not get all they’ve been promised unless taxes are raised much higher, for them and for the rest of us alike.

It’s easy for the leftists to howl that they are in the right. They often may well be.

Yet, really affecting policy is about much more than blasting your real or perceived foes in social media or feeling good about marching in a colorful and loud protest.

The heart of democracy is in persuading at least some who might not be on your side originally so that you get a majority to agree with your choice at the polls.

He acknowledged Anders’ point, which is a good thing and shows that Lindall did do some persuading.

posted by Rich Miller
Wednesday, May 4, 16 @ 1:03 pm

Comments

  1. The $16,000 pension payments aren’t the problem. The pensions greater than $75,000 not taxed are the problem, this doesn’t even include the problem of double dipping and tier 2 subsidizing tier 1 pensions.

    Comment by Almost the Weekend Wednesday, May 4, 16 @ 1:10 pm

  2. Reporter’s Feathers Ruffled Over Rival Birds’ Feather Ruffling

    More at 10

    Comment by Johnny Pyle Driver Wednesday, May 4, 16 @ 1:10 pm

  3. The real people bailing out pensioners are tier 2 ppl…

    Comment by A Modest Proposal Wednesday, May 4, 16 @ 1:32 pm

  4. Dan will be a more successful writer if he reads and is familiar with the topic. The on-line Illinois Retirement systems reports over the past years are available fer free, and yeah, they have typically had great returns, beating the benchmark the vast majority of years. They use a new fangled thingy called “Model Portfolio Theory” to invest the dough.
    Also, there is a big miss. The problem has not been a failure of the Pension funds to make investments. It has been the failure to make the actuarial payments. Edgar Pension Ramp. Epic Fail.

    Comment by Beaner Wednesday, May 4, 16 @ 1:33 pm

  5. I believe Mr. Lindall was being conservative enough with his return rate. Since the early 80’s (when the many of the current crop of retirees entered the profession), TRS has averaged a return rate over 9%. He is correct in stating that (if the funds are actually invested) the miracle of compound interest over time can do wonders. Unfortunately, the state needs to put the employer share in for this powerful compounding to happen.

    Comment by Ole' Nelson Wednesday, May 4, 16 @ 1:35 pm

  6. If there was a progressive income tax, then support might exist for taxing pensions over some figure–but $75K is too low. $95/100 more realistic.

    Comment by D.P.Gumby Wednesday, May 4, 16 @ 1:36 pm

  7. —Edgar Pension Ramp. Epic Fail.—

    True Story

    Comment by A Modest Proposal Wednesday, May 4, 16 @ 1:39 pm

  8. DP - Tax pensions over $75k seems reasonable to me, if you’re gonna do it. For someone making $80k pension and a 3% tax on incremental pension over $75k, it would be $150 a year.

    Comment by Six Degrees of Separation Wednesday, May 4, 16 @ 1:42 pm

  9. ===It’s easy for the leftists to howl that they are in the right. They often may well be.===

    And so if you think the government should honor it’s obligations like everyone else, you are a leftist. Welcome leftists!

    Comment by Ducky LaMoore Wednesday, May 4, 16 @ 1:47 pm

  10. Public pensions have been underfunded by the legislature for years yet I didn’t hear much outrage until the economy tanked and many private pensions went the way of the Edsel. While it is regrettable and wrong that those workers have lost a valuable benefit, that does not justify in my mind taking the position that existing public pensions should be altered. This crisis was in many ways man made. Fix it going forward but pay your current obligations now.

    Comment by Stones Wednesday, May 4, 16 @ 1:50 pm

  11. Illinois Public Pension Debate Over. Supreme Court Says Pay Up. End of debate.

    Comment by formerpro Wednesday, May 4, 16 @ 1:50 pm

  12. ==We can disagree on how we got here.==

    A disagreement implies the other party is listening. Dan and his ilk want to short-change their neighbors, while continuing to receive artificially discounted services.

    Comment by Jocko Wednesday, May 4, 16 @ 1:56 pm

  13. –Progressive public-employee unions …–

    I continue to search for the point when right-wingers decided that “progressive” would replace “liberal” as the go-to supposed derogatory term.

    To date, the first usage I’ve found was by George Will. It had something to do with his contention that the good-old-days-that-never-were ended when Teddy Roosevelt busted the Trusts and Al Smith got child labor laws passed in New York.

    Women’s rights. Civil rights. Social safety net. Greatest expansion of wealth and security for the most people in world history.

    It’s all been downhill since those Progressives came around.

    Comment by wordslinger Wednesday, May 4, 16 @ 2:01 pm

  14. But yet there’s no statement about the other side: when the pension fund makes more than 7%, the taxpayers (which, as Anders wisely pointed out, includes public employees) win since those excess earnings reduce the required state contribution. As Ole’ Nelson mentions above, TRS’ actual return has been above that 7% assumed rate overall. Opponents need to remember that markets go both directions.

    Comment by Katiedid Wednesday, May 4, 16 @ 2:03 pm

  15. TRS Return by Fiscal Year

    2015 + 4.6%
    2014 +18.1%
    2013 +13.5%
    2012 +1.34%
    2011 +24.3%
    2010 +13.5%
    2009 - 22.3%
    2008 - 4.5%
    2007 +19.6%
    2006 +12.2%

    Geometric mean: 7.16%. Any questions?

    Comment by Tier II Employee Wednesday, May 4, 16 @ 2:04 pm

  16. I wish Anders had made the point more strongly that the taxpayers have NOT paid their fair share yet, and that is the primary reason pensions are not fully funded. The assumed return has been met and exceeded, so his aggrieved “taxpayers” have not been left with the bill for any anything that they should not be paying. And, yes, I am grateful to the taxpayers for my salary and pension, but I earn them with my hard work for those same taxpayers. They are not gifts.

    Comment by Jibba Wednesday, May 4, 16 @ 2:05 pm

  17. It’s not a “democracy.” It’s a contract. The democracy part happened when all of us elected the people who entered into the contract in the first place. “Democracy” means we all pay the price when we do not choose wisely. The “shared sacrifice” is the tax, not stealing from public employees.

    Comment by Anonymous Wednesday, May 4, 16 @ 2:11 pm

  18. This is the “shared sacrifice” trash under a new guise of “democracy.” The democracy happened when all of us had the opportunity to elect leaders with the power to enter into a contract and the burden of suffering the consequences if we chose unwisely. Highly insulting that public employees are accused of not being “democratic” merely because they are entitled to receive earned benefits under their employment contracts.

    Comment by Anonymous Wednesday, May 4, 16 @ 2:17 pm

  19. I am a Finance Professor who understands a thing or two about compounding and investment returns over time. I have posted in detail many times that claims like those made by pension opponents such as Taxpayers United, or by Dan in this thread, that Illinois pensions are overly generous because participants contribute only 4-8% of their eventual pension payouts, are basically spurious. I can easily demonstrate that a long-term Walmart employee who consistently contributed to that company’s 401k plan and had a similar asset allocation would have achieved the same thing over the past 30-40 years, and going forward over the next 20-30 even if future investment returns end up being significantly lower.

    Now having said that, I must acknowledge that Walmart (despite its reputation) is actually pretty generous as private sector employers go, because they fully match, dollar-for-dollar, employee 401k contributions up to 6% of salary, and they contribute 6.2% to SS. This just underscores the fact that one big reason we have a retirement crisis in this country in the private sector is employer stinginess - if all employers were like Walmart, and if full participation in 401k plans were mandatory, then I suspect the vast majority of private sector workers could look forward to decent retirements.

    Comment by Andy S. Wednesday, May 4, 16 @ 2:18 pm

  20. Mihalopoulos hasn’t a clue about the actuarial principles underlying the pension funding computations. The 7% is a prediction of what investments in the fund will earn, not a “guarantee.” When the fund earns more than 7%, the taxpayers get to kick in less than they would otherwise until things balance out again. So if the funds earned more than 7%, the state gets the benefit. If less, it pays extra. Also, the higher the predicted rate, the less the state has to pay into the fund to meet its actuarial obligations, so the state has an incentive to use a higher predicted rate of return.

    Comment by Whatever Wednesday, May 4, 16 @ 2:18 pm

  21. Mihalopoulos is an above average writer. Math not so much. Also doesn’t remember the late ’70s and early 80’s when bank CDs were around 12% interest and mortgage rates were around 14%.

    Comment by Bogey Golfer Wednesday, May 4, 16 @ 3:22 pm

  22. Unfortunately Mihalopoulos, who was a heckuva city hall reporter, has turned into a cheap, unworthy Kass imitation since he got a column at the Sun-Times. Bizarre stuff left and right that doesn’t stand up to logic.

    Comment by Precinct Captain Wednesday, May 4, 16 @ 4:07 pm

  23. What about the return on investments if the “employer” had properly contributed to the pension funds for the years going back a decade or two?

    Comment by Wensicia Wednesday, May 4, 16 @ 4:09 pm

  24. Wensicia:

    When both the employee and the employer make their contributions, and the investment returns meet expectations, then the pension is fully funded. Some might call that a happy accident, but not the actuaries who designed the plan.

    Comment by Jibba Wednesday, May 4, 16 @ 6:15 pm

  25. Jealous much?

    Comment by PENSIONS ARE OFF LIMITS Wednesday, May 4, 16 @ 9:15 pm

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