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* Doug Finke talked to Rep. Robert Martwick (D-Chicago) about possible pension bills this year. Martwick chairs the House Personnel and Pensions Committee…
Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.
Martwick’s idea is to have pension systems compute how much those annual raises would amount to cover the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version. […]
Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt. […]
The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.
Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.
I don’t know that the state has to physically sell bonds. A buddy of mine contends that it might be able to just hand the pension systems a promissory note.
Anyway, your thoughts?
posted by Rich Miller
Monday, Jan 22, 18 @ 12:45 pm
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Hard to envision a great market reaction to that large of a bond offering. A better option would be transferring the obligations and existing funds to an insurance company. Cap the risk and transfer the liability
Comment by Sue Monday, Jan 22, 18 @ 12:56 pm
They should have done the bond thing when interest rates were much lower and before Rauner moved the state’s credit rating to nearly junk status.
A promissory note? Isn’t that how we got here in the first place? I think the idea is to save the investment rate interest that the state owes for not paying their portion in the first place.
Comment by A Jack Monday, Jan 22, 18 @ 12:57 pm
From the article: “It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”
Tier 2 is “much more financial manageable” not so much because of COLA, but because the pension benefit is derived from the average salary earned during 8 years, not 4, and has increased age requirements for elgibility.
Comment by City Zen Monday, Jan 22, 18 @ 12:58 pm
At least this one sounds like it would meet the constitutionality aspect of the change. It doesn’t seem clear if the change to tier 2 is just the AAI or a complete change to tier 2. No one in their right mind would change to tier 2, unless the up front offer is absurd. If it is only a change to the AAI of tier 2 and everything else remains tier 1, you might get some takers - but, the up front offer has to be substantial. I’ thinking a year’s salary at least.
Comment by Dublin Monday, Jan 22, 18 @ 12:59 pm
Bonding out the debt at today’s relatively low rates would be the prudent thing to do. However, since it would effectively kill the Republican fever dream of just ending pension payments via some sort of a federally sanctioned pseudo-bankruptcy by the state, it’ll never happen.
Right Ron?
Comment by PublicServant Monday, Jan 22, 18 @ 1:01 pm
CZ, I don’t think the 8 vs 4 makes much of a difference except for the few who are able to spike their pensions. Most people are topped out toward the end of their careers and this that aren’t don’t get much of.a raise that lets anyway.
Comment by Dublin Monday, Jan 22, 18 @ 1:01 pm
Refinancing the debt and incentivizing participants to chose short-term financial gains over their 3 percent compounding COLAs, are probably the only constitutional solutions for lowering the state’s costs. So, yeah, Martwick is on the right track.
Comment by Roman Monday, Jan 22, 18 @ 1:02 pm
I’m by no means any sort of financial expert, but it would seem worth exploring bonding out the debt in order to pay a lower interest rate.
Comment by Just Observing Monday, Jan 22, 18 @ 1:04 pm
== Tier 2 is “much more financial manageable” ==
… because the employee pays the entire cost of the reduced benefits.
That’s it, right there. The employer, the State, doesn’t have to pay in for the Tier 2 benefits. Anything is affordable if you don’t have to pay for it.
Comment by RNUG Monday, Jan 22, 18 @ 1:10 pm
–A buddy of mine contends that it might be able to just hand the pension systems a promissory note.–
I don’t think that forces the GA to cover the nut every year like muni bonds would.
–A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.–
Would like to see that fact sheet. A $107B Illinois pension bond would be a 25% bump over total muni debt issued in the country for 2016.
That’s a lot of paper, a lot of supply, making for a buyer’s market. I’d like to see how that would be structured in an attempt to keep yields down.
https://www.reuters.com/article/usa-municipals-deals/u-s-municipal-market-sales-reach-6-year-high-in-2016-idUSL1N1EP073
Comment by wordslinger Monday, Jan 22, 18 @ 1:12 pm
Please wake me when someone begins talking about taxing the liquor and casino monopolies. A billion is Alcohol and Gaming taxes would help illinois financial ship of State.
Comment by Al Monday, Jan 22, 18 @ 1:14 pm
Link the reduced benefit to an early retirement option and the deal may be something tier 1 employees would be interested in.
Comment by Johnnie F. Monday, Jan 22, 18 @ 1:14 pm
Martwick’s proposal to buy out the 3% AAI would be legal as long as it is voluntary. But if probably won’t make financial sense for the employee because it reads to me like they will calculate the present value of the 3% AAI, then further discount it before offering it as a buyout. About the only employee it would make sense to is someone with a terminal illness and no spouse or dependents.
If employees are thinking rationally, there will get few takers for a discounted offer.
Comment by RNUG Monday, Jan 22, 18 @ 1:15 pm
As far as bonding out, it may make some financial sense but it will never happen. The State would be converting a soft payment (that they can short or skip it tough financial times) into a hard payment that must be made first regardless of other needs. Huge loss of about the only financial flexibility the State has.
Comment by RNUG Monday, Jan 22, 18 @ 1:19 pm
People need to think long and hard before giving up their 3% compounded cola. This was from a 2013 newspaper article - based on 30 year figures from 1982 thru 2012.
http://www.sj-r.com/x369946604/Robert-Rich-Committee-can-craft-real-pension-reform
Over this same 30-year period, a person in the State University Retirement System earning a $10,000 pension is receiving $24,272.62 in 2012 under the current COLA system — a 3-percent compounded annual increase.
If a person is part of the current U.S. Social Security system and receiving a $10,000 pension in 1982, he would receive $24,175.23 in 2012, reflecting the Social Security system COLA.
However, if this same person was limited to one half of the consumer price index (the current IGPA proposal), he would be receiving a pension of $15,687.31 in 2012 and would have lost about $8,500 in purchasing power.
Comment by Joe M Monday, Jan 22, 18 @ 1:19 pm
Another incentive might be offering a 1/2 percent longevity raise for every year a person works past the age of retirement. For many salaries and pensions that would save more than half the cost of the AAI. And since no one lives forever, you are helping to run out the clock on that person’s benefits.
Comment by A Jack Monday, Jan 22, 18 @ 1:19 pm
Someone should definitely run the math on an ERO offer for Tier I members. Would the benefits of replacing Tier I people with Tier II outweigh the costs long term?
Comment by Anonymous Monday, Jan 22, 18 @ 1:19 pm
- Al - Monday, Jan 22, 18 @ 1:14 pm:
Please wake me when someone begins talking about taxing the liquor and casino monopolies. A billion is Alcohol and Gaming taxes would help illinois financial ship of State.
Is that supposed to funny? We tax both A LOT
Comment by Ron Monday, Jan 22, 18 @ 1:20 pm
Legalized pot would help.
Comment by Ron Monday, Jan 22, 18 @ 1:22 pm
On second thought, there is one other group that it might make sense for them to take a buy out: a former Tier 1 State employee not yet eligible for rehire with between 8 and about 15 years of service credit. It would depend on the situation but I can construct some scenarios where taking a discounted buyout and investing it might make sense.
Comment by RNUG Monday, Jan 22, 18 @ 1:28 pm
Ron, I am completely serious. We subsidise the liquor and casino industry, we do not tax them. If we had washington state’s liquor tax we would have $500 million more revenue. Casinos ship so many hundreds of millions out of state each year it drags our job creation and cheats the common scool fund, teacher retirement and results in higher income and property taxes.
$400 million in New Cannabis taxes would be a big plus to the states revenue stream too.
The centers for disease control studies report illinois has a $4 billion alcohol subsidy. The $270 million in taxes, pennies per drink of beer costs taxpayers 75 cents per drink. We loose dough on alcohol sales.
Every day my opinion of elected officials goes down just a little bit. If the casinos are so great for illinois how come out schools have lead water and our teacher pensions are not well funded? Was not that the promise nearly 30 years ago?
Comment by Al Monday, Jan 22, 18 @ 1:34 pm
1.) Pass a law that changes the pension ramp.
2.) Start making a large annual payment to fully fund or completely fund or 80% fund or something like that in 30 years.
3.) Create a progressive income tax to pay for it.
4.) End the subtraction for federally taxed retirement so the folks that benefited from not paying for services they received while working without paying for them.
5.) Legalize pot and tax it. That will help pay for it too.
Comment by Anonymous Monday, Jan 22, 18 @ 1:36 pm
RNUG- spot on. If the state like this year wanted to reduce its pension hit you would be defaulting. Illinois is better off owing the pension systems the money then having a hard obligation to bond holders. Think Greece
Comment by Sue Monday, Jan 22, 18 @ 1:36 pm
I turn 50 this year and have 13 years in. Management makes me question how I will ever make it to 60. I would take a reduced benefit and go work somewhere else if it is offered. I believe that they make our lives so miserable because they want all of us to quit. I won’t quit but would jump at early retirement with a reduced benefit. I know others who also would just to get out of such a toxic atmosphere.
Comment by Anonymous Monday, Jan 22, 18 @ 1:37 pm
== Would the benefits of replacing Tier I people with Tier II outweigh the costs long term? ==
Probably not when you remember to add in the additional cost of the health insurance. That was a major portion of the unexpected cost of the 2002 ERI.
Comment by RNUG Monday, Jan 22, 18 @ 1:38 pm
RNUG, if an employee/new retiree has a mortgage and could pay it off with the money the state would pay for the change from COLA to AAI, would it make more sense then?
Comment by Anonymous Monday, Jan 22, 18 @ 1:38 pm
Issuing bonds at a low interest rate to pay down high interest rate debt is a no-brainer that should have been done years ago.
Comment by DuPage Monday, Jan 22, 18 @ 1:39 pm
RUNG
What former employees are not eligible for rehire?
Comment by Anonymous Monday, Jan 22, 18 @ 1:40 pm
–Issuing bonds at a low interest rate to pay down high interest rate debt is a no-brainer that should have been done years ago.–
Flooding the market with that much new debt all at once is anything but a no-brainer. My guess is that it would have to be done in stages over years to maximize savings.
Comment by wordslinger Monday, Jan 22, 18 @ 1:42 pm
How do we subsidize liquor?
Comment by Ron Monday, Jan 22, 18 @ 1:44 pm
—
RUNG
What former employees are not eligible for rehire?
—
Yes, confused about this. Why are 8 and 15 years the bookends for no rehire? Are you saying after 15 years they’re eligible?
Comment by Bobby T Monday, Jan 22, 18 @ 1:45 pm
== I won’t quit but would jump at early retirement with a reduced benefit. ==
I would hang on until after the election.
And if you wanted to leave then, I would still think long and hard on it. That health insurance benefit when you hit 20 years is worth a lot. It’s hard to put a value on it, and you may not appreciate it now, but you will when you are retired.
Comment by RNUG Monday, Jan 22, 18 @ 1:46 pm
To paraphrase Dick Lamm, Tier 1 pensioners have a duty to die.
Comment by Anonymous Monday, Jan 22, 18 @ 1:47 pm
Dublin, 8 vs 4 makes a pretty big difference in TRS and SURS. That change alone could reduce one pension by a few thousand dollars. Multiply that by the # of participants, then add in COLA considerations, and the savings adds up quickly.
Comment by City Zen Monday, Jan 22, 18 @ 1:48 pm
We subsidies alcohol by making poor working class people who try to make rent and keep shoes on their kids pay unfair income taxes with meaningless phony baloney standard exemptions.
Comment by Al Monday, Jan 22, 18 @ 1:50 pm
==5.) Legalize pot and tax it. That will help pay for it too.==
Social service providers, state universities, and the new school funding formula have already spent this non-existent money.
Comment by City Zen Monday, Jan 22, 18 @ 1:51 pm
Wait until the next crash and bond at negative interest rates like Europe did.Why do it under rising rates. At negative rates it really costs less.
Comment by Not a Billionaire Monday, Jan 22, 18 @ 1:52 pm
== Yes, confused about this. Why are 8 and 15 years the bookends for no rehire? Are you saying after 15 years they’re eligible? ==
Typo / phone auto-correct I didn’t catch. Meant to say retirement, not rehire.
The point was there are some people who left government but left their money in the retirement systems. I mention 8 on the low end because that is the minimum number of years needed to collect state retirement. I mentioned 15 because somewhere between 15 and 20 years is where you cross the point of being so invested in the State retirement system you really should not walk away from it. But inbetween it is one of those “it depends” gray areas.
Comment by RNUG Monday, Jan 22, 18 @ 1:53 pm
Illinois going to the bond market with a 100 BILLION offering? That’s just insane. I mean, a horrible idea. Illinois with the largest offering ever? Anywhere in the world? Who seriously thinks that would work out well for the residents of Illinois? I mean other than the pensioners.
Comment by Just Visiting Monday, Jan 22, 18 @ 1:53 pm
Thanks RNUG
RNUG - Monday, Jan 22, 18 @ 1:46 pm
You always have common sense
Comment by Anonymous Monday, Jan 22, 18 @ 1:54 pm
- Al - Monday, Jan 22, 18 @ 1:50 pm:
We subsidies alcohol by making poor working class people who try to make rent and keep shoes on their kids pay unfair income taxes with meaningless phony baloney standard exemptions.
WHAT????
Comment by Ron Monday, Jan 22, 18 @ 2:04 pm
That makes no sense Al.
Comment by Ron Monday, Jan 22, 18 @ 2:04 pm
This need not be an all or nothing proposition. Even bonding out a third (savings 34 billion) or half (savings 52 billion) seems a lot more doable.
Comment by Retired Already Monday, Jan 22, 18 @ 2:11 pm
Ron, to have an extra warm body at your home to care for does that run you $99 a year? Can you do this on less than 28 cents per day? What are you feeding those mouths, dirt? The income tax is being used to abuse taxpayers to subsidize liquor and casino monopoly license holders.
Comment by Al Monday, Jan 22, 18 @ 2:12 pm
==Bonding out the debt at today’s relatively low rates would be the prudent thing to do. ==
This may be the right thing to do, but its a gamble. We’d be borrowing money to invest in the stock market. How many of the proponents of this approach would advise you to max out on a home equity loan to buy stock?
The best argument for this approach might be that bond payments get made, pension contributions, not so much.
Comment by Ebenezer Monday, Jan 22, 18 @ 2:18 pm
Al, you not demonstrated that we subsidize liquor.
Comment by Ron Monday, Jan 22, 18 @ 2:31 pm
The major problem has never been the pension system. It has been the failure to fund it. In 2009 there were stories comparing the state’s was paying for services, including the value of insurance and pension’s, with major private corporations. The difference was pennies per hour. I think a different problem is building now. I have not done a survey but believe that people hired under the new pension system are leaving at a higher rate then before, at least in the merit comp positions. Those who stay are changing jobs frequently. And, there are stories about teacher shortages. In the not distant future the state will have to increase overall compensation to have a stable work force.
Comment by Bigtwich Monday, Jan 22, 18 @ 2:32 pm
==Hard to envision a great market reaction to that large of a bond offering. A better option would be transferring the obligations and existing funds to an insurance company. Cap the risk and transfer the liability. ==
That is the same thing as issuing bonds, except that you’re doing it through the insurance company, which will have to issue bonds to finance their obligation to pay the pensions. And their bonds are taxable, so they have to pay a higher rate. Plus they want to earn a profit on the deal. Issuing bonds straight to the market eliminates the middle man. The size of the issuance is relatively unimportant, because creditors are fully aware that the pension obligation exists and, if state bankruptcy were allowed, the pension obligations will reduce the funds available to pay the bonds, as happened in Detroit. In effect, the bonds are already out there - we’re just paying too high an interest rate for them.
Comment by Whatever Monday, Jan 22, 18 @ 2:37 pm
“In 2009 there were stories comparing the state’s was paying for services, including the value of insurance and pension’s, with major private corporations. The difference was pennies per hour.”
Bigtwich
Can you cite one of these or tell us how to find them? Not doubting you, just want to read it myself. Thanks
Comment by Ole' Nelson Monday, Jan 22, 18 @ 2:44 pm
Ron, go to the cdc.gov site and do a search on alcohol societal costs. You should find a 2006 study which will talk about the cost of special education, birth defects, people killed or crippled in car accidents, the cost of medical and property casualty insurance rates. Illinois loses 70 cents on every can of beer sold and the lose is covered up by meaningless standard exemptions on the income tax.
Comment by Al Monday, Jan 22, 18 @ 2:44 pm
Agree with Johnnie F. Give an early out and we’ll talk about the COLA.
Comment by An employee Monday, Jan 22, 18 @ 2:55 pm
Thinking out loud, would it be lawful to make the pension system akin to Social Security. And take a dollar away from a retiree’s paid pension benefit when a dollar was earned in salary - once they started taking their retirement? Keep it that way till age 70 or something.
I have always thought there is a hidden drag on the labor market in places with early retirees going into the private workforce and drawing two checks and keeping a job away from someone else.
Comment by Anonymous Monday, Jan 22, 18 @ 2:55 pm
==I have not done a survey but believe that people hired under the new pension system are leaving at a higher rate then before, at least in the merit comp positions. Those who stay are changing jobs frequently. And, there are stories about teacher shortages.==
The quit rates for state and local public employees across the country are still much lower than every other comparable industry. I don’t doubt it’s increasing, but so is every other industry.
Comment by City Zen Monday, Jan 22, 18 @ 2:56 pm
==I have always thought there is a hidden drag on the labor market in places with early retirees going into the private workforce and drawing two checks and keeping a job away from someone else.==
I’m aware of retired educators going to work for education-related consulting firms who then sell their services back to the school districts. I’ve also seen a few instances of retired teachers working for the teachers union.
Comment by City Zen Monday, Jan 22, 18 @ 3:03 pm
If I’m not mistaken, TRS employees paid for the 3% with each and every paycheck. Why would I agree to give up something that I’ve at least helped to pay for?
Comment by Retired Monday, Jan 22, 18 @ 3:05 pm
According to this article, 40-50% of newly hired teachers are gone within 5 years. Now, with the attack on benefits paid to them, that number will probably increase and we are facing shortages in some areas. But, the cry is still that they’re paid too much for a cushy job. Apparently, when you actually perform the job (as opposed to observe casually as a student, parent or community member), the experience is not so satisfactory.
I guess the answer to that would be to pay even less and cut benefits more /s
https://www.npr.org/sections/ed/2015/03/30/395322012/the-hidden-costs-of-teacher-turnover
Comment by Anonymous Monday, Jan 22, 18 @ 3:11 pm
I think at least part of the solution should be increasing the Tier I employee contributions until 90% funding is achieved, like MWRD does.
And, done properly, doing a good round of pension bonds could work great. It can’t be done with the lack of leadership we currently have, but with the right people doing the right thing, everyone could win.
Comment by ImNotTaylorSwift Monday, Jan 22, 18 @ 3:11 pm
A few points-
Agree with RNUG that the “Cash for AAI” trade is a bad deal for most annuitants and unlikely to garner much interest, and hence much savings.
A bond issue that size is unlikely as Word pointed out very well. To the extent a smaller issue could be done and the proceeds were released to the systems/ISBI to invest, worries about “stock market risk” are largely unfounded, as the funds hold well under 50% in US equities. They also hold foreign equities, bonds, real estate, private equity, and hedge funds.
Finally, an ERI on terms interesting to employees would not be affordable to either the state or the 30% funded SERS.
Comment by Arthur Andersen Monday, Jan 22, 18 @ 3:13 pm
Retired, you are correct. Your every paycheck deducation to TRS paid not only for your AAI as well as Teachers Retirement Insurance Program, which not every retired teacher uses.
Comment by Anonymous Monday, Jan 22, 18 @ 3:13 pm
== Thinking out loud, would it be lawful to make the pension system akin to Social Security. And take a dollar away from a retiree’s paid pension benefit when a dollar was earned in salary - once they started taking their retirement? ==
Not sure if you are talking about taxation or benefit reduction
State retirees already get hit a couple of different ways in benefit reduction via certain, mostly federal, offset rules. I don’t think you could do it to a state pension via benefit reduction, given various court rulings.
Now you could probably do it via taxation. But since we don’t tax any retirement today, that will be a steep hill. And doing it by taxation, you couldn’t just target state retirees, it would have to be anyone getting a pension.
Quite frankly, I think it would be easier to extend the State income tax to some portion of retirement income than try to implement some kind of penalty system that would be legal.
Comment by RNUG Monday, Jan 22, 18 @ 3:14 pm
== should be increasing the Tier I employee contributions ==
Already been ruled you can’t change the terms of the pension, including contribution rate … unless you also provide an increased / expanded benefit and the employee voluntarily opts into the new benefit.
Comment by RNUG Monday, Jan 22, 18 @ 3:18 pm
== , if an employee/new retiree has a mortgage and could pay it off with the money the state would pay for the change from COLA to AAI, would it make more sense then? ==
Not to me, but every person’s situation is different. Life expectancy is one factor, the longer you life, the worse an AAI for cash swap looks.
Comment by RNUG Monday, Jan 22, 18 @ 3:23 pm
== … mortgage… ==
And actually, you would be trading a guaranteed 3% AAI for a non-guaranteed 1/2 trailing CPI-U COLA capped at 3%.
Comment by RNUG Monday, Jan 22, 18 @ 3:29 pm
How did MWRD get away with it?
Comment by ImNotTaylorSwift Monday, Jan 22, 18 @ 3:50 pm
Ole’ Nelson
I will have to see if I still have the hard drive form my 2009 computer. In the mean time These sites have similar stories but are not the ones I remember.
https://ler.illinois.edu/wp-content/uploads/2015/01/Working-in-Illinois-Public-Interest_Bruno-Manzo.pdf
http://mnpera.avenet.net/vertical/Sites/%7BCB6D4845-437C-4F52-969E-51305385F40B%7D/uploads/%7BDBA0E14A-9DD0-49C3-8B6B-B1C3F756F1A2%7D.PDF?pri=0&tri=457
Comment by Bigtwich Monday, Jan 22, 18 @ 3:58 pm
Thank you Bigtwich.
I have long suspected that the cost of these plans was not overly burdensome. If only the payments from the State had been made in full and on time…
Comment by Ole' Nelson Monday, Jan 22, 18 @ 4:09 pm
RE the multiple suggestions for an ERI
You could probably structure one that might save money, even considering the health insurance costs. One of the problems with an ERI is that you are essentially cost-shifting, saving salaries in GRF while increasing payments / liabilities to the pension systems.
These are off the top of my head, I haven’t done any calculations.
Limit it to employees at least 50 years old. That would target the higher paid senior employees you want to eliminate.
Limit it to employees that are NOT already eligible to retire under the current rules, such as Rule of 85 under SERS. So that way you are only giving incentives to employees who can’t currently leave.
Allow 5 - 10 years of age on the formula. Make the additional years of age contingent on accepting the Tier 2 AAI calculation. Age doesn’t affect the size of the pension, just how soon you can collect it.
Or give a could of years of service at no cost in exchange for accepting a Tier 2 AAI.
Then allow some limited number of service credit years (2 to 5?) to be purchased. Unlike before, require the ERI participant to pay for both the employee and employer portion. Like before, allow the use of vacation and sick time credit as payment since that cash has to be paid out anyway and it gets it off the books. The last time the State allowed a payment plan with deductions from the pension check, but I don’t think they should this time. That will somewhat control future liability. This may need some tailoring because the added service years were a big factor in the 2002 ERI cost; back then you make back the purchase cost within 2 to 4 years from the increased pension payment.
This isn’t going to solve the ~ $129B pension shortfall, but it might fix a few B of it … and the Legislature will be able to say they “did something”.
Comment by RNUG Monday, Jan 22, 18 @ 4:11 pm
== How did MWRD get away with it? ==
Don’t know.
A few possibilities:
1) tied to increased benefit the employees chose to take
2) it was unconstitutional but nobody sued over it
3) they may only be a quasi-government entity
Comment by RNUG Monday, Jan 22, 18 @ 4:25 pm
Did the SC rule out employee contribution increases? I recall the footnote discussing a benefit/contribution tradeoff, but nothing that explicitly said increases in contributions alone we’re unconstitutional.
Comment by Anonymous Monday, Jan 22, 18 @ 4:32 pm
I don’t remember which decision off the top of my head, but I do remember one that tied changed benefit to changed contribution. If you reach back into history, the roughly 1970 voluntary change to coordinated SS was a change to both benefits and contributions.
Comment by RNUG Monday, Jan 22, 18 @ 4:44 pm
==According to this article, 40-50% of newly hired teachers are gone within 5 years.==
The numbers cited in that article are pretty old and does include transfers. What you’re essentially talking about is what the BLS tracks under JOLTS (Job Openings and Labor Turnover Survey). After 5 years, pretty much all industries have higher JOLT rates than public sector positions. So the accountant you hire out of college to the apprentice you take under your wing is more likely to switch jobs in 5 years than a teacher.
Comment by City Zen Monday, Jan 22, 18 @ 4:51 pm
Mwrd was 2 like Dental.
Comment by Not a Billionaire Monday, Jan 22, 18 @ 4:55 pm
==RE the multiple suggestions for an ERI==
OMG, please no more ERI’s. They never save money and at best merely shift the liability from one set of books to the other.
Figure out the budget for compensation (raises, health benefits, retirement, etc) and take the money that could be used for raises or picking up additional health care costs for Tier 1 employees and instead apply it towards pension payments. If it’s more than enough, then and only then enhance Tier 1 wages.
Comment by City Zen Monday, Jan 22, 18 @ 4:59 pm
RNUG, the benefit/contribution link is found in Federal Tax law, Section 401 (a) 17 I believe.
Also, MWRD is a Reciprocal System, Arictle 13 of the Pension Code.
Comment by Arthur Andersen Monday, Jan 22, 18 @ 5:11 pm
Biggest issue with solution 1 js the potential for adverse selection if the state doesn’t take into consideration the annuitants health prior to making an offer. The other issue is the administrative cost involved if the state actually were to properly calculate the lump sum offers on an individual basis
Comment by Chicagonk Monday, Jan 22, 18 @ 6:04 pm
== Biggest issue with solution 1 js the potential for adverse selection if the state doesn’t take into consideration the annuitants health prior to making an offer. ==
This isn’t the private sector; you won’t he able to pick and choose individuals to offer an ERI. You will have to offer the same deal to all the employees in the defined criteria.
The 2002 ERI started out as just an exit plan for some Ryan and Edgar executives numbering a couple of thousand. They found out they had to offer it to basically everyone, and that is how it became 11,000 leaving.
Comment by RNUG Monday, Jan 22, 18 @ 6:12 pm
== the benefit/contribution link is found in Federal Tax law, Section 401 (a) 17 I believe. ==
Thanks -AA-.
Comment by RNUG Monday, Jan 22, 18 @ 6:13 pm
@RNUG - Could they structure the offer so that it is conditional on a health screening? If they can’t take into account an annuitant’s health, there is no way (in my opinion) that the state would save money down this.
Comment by Chicagonk Monday, Jan 22, 18 @ 6:37 pm
== Could they structure the offer so that it is conditional on a health screening? If they can’t take into account an annuitant’s health, ==
Don’t think they have ever tried using that criteria. My gut says maybe.
Comment by RNUG Monday, Jan 22, 18 @ 6:54 pm
== The other issue is the administrative cost involved if the state actually were to properly calculate the lump sum offers on an individual basis ==
They will have to calculate it on an individual basis since each employee will have a different length of service and a different Final Average Compensation, both of which determine the starting pension benefit that is compounded by the AAI. But it shouldn’t be a big deal or labor intensive; they already calculate the estimated pension benefit annually. All it would take would be a little tweaking of that report.
Comment by RNUG Monday, Jan 22, 18 @ 7:01 pm
As an alternative to an ERO consider a delayed retirement incentive program to cut pension expenses. The State can’t force employees to work past their maximum retirement benefit (MRB) date so it must be voluntary. But when employees do work past MRB, it saves the pension system money. A simple example:
Retire age 60, live to age 80. 20 years in retirement x $50,000 = $1,000,000 in pension benefits.
Retire age 65, live to age 80 15 years in retirement x $50,000 = $750,000 in pension benefits
These are pension benefits that will never have to be paid with additional savings because there is no retirement health insurance expense during those 5 years.
Granted it is a more complex calculation than this example due to the 3% retirement COLA and wage increases. You must also factor in the wages and benefits of the replacement worker. In most instances, delayed retirement saves money.
Key will be to offer an incentive that encourages present workers to continue to work and still generates savings for the State. With many different pension systems and salary structures, it is difficult if not impossible to write a one size fits all delayed retirement incentive policy. But it is possible to write one on a system by system basis and save money. Here are different incentive ideas to consider:
1. Accrue additional pension credits for each year past MRB.
2. Once at MRB, allow the employee to stop contributing to the pension system.
3. 401(k) match.
4. Additional vacation time.
5. Public/peer recognition of the employee for their continued service.
If the goal is to decrease the annual outflow out of the pension system (thus increasing funding levels) this proposal can work. If the goal is to immediately decrease the amount of money the State puts into the pension system on an annual basis, then the State needs to look elsewhere for savings because it will be very difficult to consistently predict participation levels.
Comment by Brick Tuesday, Jan 23, 18 @ 6:52 am
–Public/peer recognition of the employee for their continued service.–
That made me laugh so hard.
My God, public servants are
enemy number one currently
to Republicans.
The thought of being lauded for service
by the public right now is
inconceivable.
Comment by Honeybear Tuesday, Jan 23, 18 @ 7:25 am
Brick, one factor you are missing, is that a large number of workers will get pay increases in those 5 years. Thus making them have a higher starting point in their pensions, which makes the “COLA” greater each year.
Comment by Person 8 Tuesday, Jan 23, 18 @ 7:28 am
I think RNUG pointed this out but could find it again…One of the biggest issues with this is the system would have to guess what each members final average salary(FAS) would be. This is not an issue for people close to retirement, however this offer would most likely not be taken up by them anyway (unless they had some sort of terminal illness).
For those that have many years left in Teir 1(especially TRS members who may be looking to move up into admin roles) there is just no way to properly calculate those numbers.
Also, if someone accepts the money when would they get it? When they retire? Now?
Comment by Person 8 Tuesday, Jan 23, 18 @ 7:33 am
–The thought of being lauded for service
by the public right now is
inconceivable.
Then start with smaller steps through peer recognition. My boss routinely recognizes and thanks the 5 in my division at MRB that have elected to remain working.
–one factor you are missing, is that a large number of workers will get pay increases in those 5 years
A 2% annual raise was factored into the projection model.
Comment by Brick Tuesday, Jan 23, 18 @ 8:28 am
Brick
MRB has nothing to with retirement age. It has to do with the number of years you work at the state. For a normal SERS system member, its 44.5 years. Most people never get there, because they would have had to start right out of high school to reach it by 62. There are many state workers who won’t be anywhere near that number when they retire, even if they delay retirement to age 67.
Anyone who actually has reached MRB already gets 6 weeks vacation time.
what makes you think the state would match a 401k? They often have failed to fund the pension system. The reason teachers aren’t on social security is that their districts would have to pay the employer half of the social security contribution immediately.
Comment by thoughts matter Tuesday, Jan 23, 18 @ 9:30 am