Stockton, CA filed for bankruptcy

[Isgrimnur]

Time

In opting to become the nation’s largest city to seek federal bankruptcy protection, this river port of 290,000 took a rare financial step of last resort after struggling with the economic downturn, soaring pension costs and contractual obligations.

Thirteen cities, counties and other government entities filed for bankruptcy protection last year — the highest annual level in nearly two decades. Stockton was the seventh U.S. municipality to file this year and the first California city since Vallejo, which sought protection in 2008, according to James Spiotto, a Chicago bankruptcy attorney who tracks municipal bankruptcies.
...
Stockton City Manager Bob Deis said officials were left with little choice but to recommend bankruptcy after failing to hammer out finance agreements with creditors to address the city’s $26 million budget shortfall.
...
The City Council on Tuesday voted 6-1 to adopt a special bankruptcy budget to address Stockton’s $26 million shortfall if the city files for bankruptcy, as expected, by Friday.

The city has been hit hard by high crime and the collapse of the housing market in the past three years. It’s also dealt with $90 million in deficits through a series of drastic cuts.

The new budget did not call for additional service cuts beyond those that earlier slashed the police force by one-fourth, the fire department by one-third and 40 percent of other city employees, along with wages and medical benefits.

The budget approved Tuesday night would suspend payments for debts and legal claims; reduce payments for retiree medical benefits; further cut some pay and benefits; and increase revenue through code enforcement and parking citations.

It must really suck to be someone that gave your life's work to the city in exchange for those retirement benefits, only to lose them at a point where you have few options left.

[LawBeefaroni]

It must really suck to be someone that gave your life's work to the city in exchange for those retirement benefits, only to lose them at a point where you have few options left.

When they're 27% of the annual budget, there's a problem.

[Written in May.] Stockton faces an avalanche of obligations that it cannot meet. Foremost among them are contributions to public employee pensions, as well as debt service on bonds earlier sold to fund its pension contributions. All told, the retirement-related annual payments by the city amount to about $37 million of its total budget of $196 million, not including another $17 million spent on retiree health care. With only $1 million left in its cash balances, the city is on the brink of collapse.

[stessier]

Agreed, but it still sucks for the recipients.

[LawBeefaroni]

It does suck. They probably planned much of their life around it. But you have to question the sustainability of it at some point.

[stessier]

It does suck. They probably planned much of their life around it. But you have to question the sustainability of it at some point.

Without a doubt and it was probably irresponsible of the city to agree to the benefits. The pensioners should also have asked questions and planned for what to do if the pensions fail. But I find that level of personal responsibility fairly rare.

[Isgrimnur]

It's an "all your eggs in one basket" kinda thing, but really, who expects a city government to completely fail? Especially one that large.

[stessier]

It's an "all your eggs in one basket" kinda thing, but really, who expects a city government to completely fail? Especially one that large.

Especially when it's an "all in one basket" thing, don't you at least have to ask the question "yeah, but what if?"

[GreenGoo]

It's an "all your eggs in one basket" kinda thing, but really, who expects a city government to completely fail? Especially one that large.

Especially when it's an "all in one basket" thing, don't you at least have to ask the question "yeah, but what if?"

You would think.

I have a co-worker who's an independent contractor. He's a saving machine. He makes, hmmmm, 2.5 times what I make, give or take. He puts it away, plans like a mofo. He's not too smart/sophisticated with money, but he is diligent. He's a good guy. He is constantly talking about how his tax dollars being wasted, pensions being unsustainable and unreasonable burden on the tax payer, etc etc. No sense of irony or decorum, this guy, given that his salary is paid by tax payers and he is surrounded by people he continually trashes in general terms. Which is fine. I don't really care. But when we talk about retirement planning (a favourite topic of his) he is constantly questioning my putting money aside in an independent retirement vehicle. His argument is that I don't need it, my pension is locked in and solid gold, etc, etc. How I'm pushing myself into a higher tax bracket in retirement and reducing the amount I will receive in government benefits due to having more income from my independent reitrement plan (think 401k but for Canadians), both of which are potentially true. And this from the guy who is constantly railing against federal pension plans.

My retirement pension is going to get hit. It just is. How badly I don't know, but it will be reduced before I retire. I'm not blind. But this co-worker of mine is constantly applying psychological pressure to stop saving and just rely completely on my government pension. The idea that he can argue against pensions on one hand and then argue against saving towards an independent, personal retirement plan in the same breath is perplexing.

Now I work for the Federal Government. If it goes belly up I've got bigger problems than retirement funds, but the point is the pension is not sancrosanct (although pretty close) and our current government is going to take a swipe at it if they get their chance. They've already reduced another retirement benefit for current employees, and removed it entirely for new hires, so it's not like having a contigency plan is outrageous.

[LawBeefaroni]

Right now we look at these benefits as sacrosanct. But in tougher times (yes, even tougher than now), the idea of paying someone half (or 3/4s or whatever it is) of their salary when they're not working, plus full healthcare, will be an easy target.

I know CPD officers looking to retire at 58 and expect $70K a year in retirement. I think it's well deserved. But I also know that in any huge budget crisis that's going to look insane.

[Anonymous Bosch]

I have a friend who works as a financial advisor. Two of his current clients are former city employees in California that both worked in the same job. The first retired in his fifties and collects a $200,000/yr pension, most of which the wife will continue to receive upon the demise of her husband. The second bloke worked for five years in the same position after the first bloke retired, and has since also retired in his fifties with the exact same pension benefits. The mind boggles at what that city is squandering on that one position, let alone all the rest of its employees. Said friend has told me in no uncertain terms that it's simply a matter of time before that city ends up in the exact same position as Stockton.

It's gotta suck for those who were assured of receiving such extravagant benefits, but as Gerald Ford put it, "A government big enough to give you everything you want, is a government big enough to take from you everything you have."

[GreenGoo]

I have a friend who works as a financial advisor. Two of his current clients are former city employees in California that both worked in the same job. The first retired in his fifties and collects a $200,000/yr pension, most of which the wife will continue to receive upon the demise of her husband. The second bloke worked for five years in the same position after the first bloke retired, and has since also retired in his fifties with the exact same pension benefits. The mind boggles at what that city is squandering on that one position, let alone all the rest of its employees. Said friend has told me in no uncertain terms that it's simply a matter of time before that city ends up in the exact same position as Stockton.

It's gotta suck for those who were assured of receiving such extravagant benefits, but as Gerald Ford put it, "A government big enough to give you everything you want, is a government big enough to take from you everything you have."

I'm keen to know what positions these guys held. Are they employees in the same way the mayor is an employee? Because a $200k pension is the stuff of high level politicians, most of the time, given that pensions are typically a percentage of their salary (usually less than 100% ) so I'd like to know what job was paying a civil servant over $200k. It might be a job worth pursuing.

For the record, our execs make less than $200k, and we're in the process of laying off ~200 of them. There is a bonus system that would need to be examined on a case by case basis, and I'm not sure whether the bonuses count with regard to pensions.

[Pyperkub]

It is important to understand WTF happened to the money.

Stockton made a big bid for Bay Area Commuters, selling bonds to finance both housing/infrastructure investment and in a very questionable move, to finance their pension/health care obligations.

Then the housing bubble burst, and the Wall St Banks got bailed out, but the people they talked into these crappy deals got stuck with multimillion dollar tabs. Per the LA Times:

Oakland provides the clearest example of the risks and the allure of these bonds.

The city is credited with issuing the first pension obligation bonds in the 1980s. Another set of pension bonds the city issued in 1997 have lost Oakland $245 million, according to analysis by the city auditor. Those losses have helped push the city administration to propose more than $200 million of new pension bonds in the coming months.

"One would think they would have learned," said John Russo, the former city attorney who voted against the 1997 bonds when he was a City Council member and resigned last year because of disagreements over the city's budgeting. "This is a risk that may go horribly wrong."

Another California municipality to encounter problems after issuing pension bonds is Stockton. The city issued $125 million in pension bonds in 2007, a third of which promptly disappeared when the market crashed in 2008. But Stockton is still on the hook for the annual interest payments, some $6 million, or about 75% of the city's deficit this year. In late February, the city announced it was moving toward bankruptcy after determining it was unable to make the payments on these and other bonds.

Although local governments risk big losses from pension bonds, they carry profits with almost no risks for the law firms and banks that help arrange them. They aggressively market deals in which they get their fees up front, no matter what happens in the long term, according to several public officials.

My first instinct is to say sue the shit out of the people who ok'ed these deals, as well as the ones who profited from them. Their pensions go first. Then Stockton has to pony up taxes to cover the rest (after all, they elected the incompetent bunglers). This has nothing to do with runaway pensions or health care, but incompetent Managers and unscrupulous lawyers and bankers - all of whom should be held accountable.

[Anonymous Bosch]

I'm keen to know what positions these guys held. Are they employees in the same way the mayor is an employee? Because a $200k pension is the stuff of high level politicians, most of the time, given that pensions are typically a percentage of their salary (usually less than 100% ) so I'd like to know what job was paying a civil servant over $200k. It might be a job worth pursuing.

For the record, our execs make less than $200k, and we're in the process of laying off ~200 of them. There is a bonus system that would need to be examined on a case by case basis, and I'm not sure whether the bonuses count with regard to pensions.

Alas, said friend would face significant consequences were I to reveal any specifics. But the position they held was most assuredly not anything close to a "high level politician".

[Pyperkub]

I'm keen to know what positions these guys held. Are they employees in the same way the mayor is an employee? Because a $200k pension is the stuff of high level politicians, most of the time, given that pensions are typically a percentage of their salary (usually less than 100% ) so I'd like to know what job was paying a civil servant over $200k. It might be a job worth pursuing.

For the record, our execs make less than $200k, and we're in the process of laying off ~200 of them. There is a bonus system that would need to be examined on a case by case basis, and I'm not sure whether the bonuses count with regard to pensions.

Alas, said friend would face significant consequences were I to reveal any specifics. But the position they held was most assuredly not anything close to a "high level politician".

Were they Union, or is any part of that pension based on a salary enhanced by a lot of overtime?

[stessier]

My first instinct is to say sue the shit out of the people who ok'ed these deals, as well as the ones who profited from them. Their pensions go first. Then Stockton has to pony up taxes to cover the rest (after all, they elected the incompetent bunglers).

Why sue them? What if it had worked? Should they still be sued? There is nothing inherently wrong in the setup, it simply carries a risk of failure. Whether or not that risk is acceptable is a different question.

This has nothing to do with runaway pensions or health care, but incompetent Managers and unscrupulous lawyers and bankers - all of whom should be held accountable.

Why does it make a difference if it is runaway costs or incompetence? The result is the same- the city can not cover it's obligations. And not all of these bonds have gone bad (cities across the country have done this). Why are the lawyers and bankers to blame? If they lied, sure, but beyond that...

[Pyperkub]

Well, I did say it was my first instinct, but to me, taking money earmarked for pensions, leveraging it through borrowing in order to speculate, and then losing it and saying - whelp, sucks to be you, needs a little more investigation, especially when using vehicles designed to get around outlawing this behavior (from the LA Times article):

Some municipal finance officers realized in the 1980s that they could use these investment portfolios to do a form of Wall Street speculation that involves borrowing money at one rate with the hope of investing it and earning a higher rate.

Congress made it illegal in 1986 to issue normal tax-exempt municipal bonds for this type of speculation, but municipalities and their outside advisors realized they could get around this by issuing taxable bonds, like corporations. These bonds come with higher interest rates, but many local government officials have believed they could earn enough from investments to come out on top.

This is irresponsible behavior on both parties ends (at best), and whoever is profiting on it, should be examined EXTREMELY closely, and sued/prosecuted for any hint of misconduct.

[GreenGoo]

I'm keen to know what positions these guys held. Are they employees in the same way the mayor is an employee? Because a $200k pension is the stuff of high level politicians, most of the time, given that pensions are typically a percentage of their salary (usually less than 100% ) so I'd like to know what job was paying a civil servant over $200k. It might be a job worth pursuing.

For the record, our execs make less than $200k, and we're in the process of laying off ~200 of them. There is a bonus system that would need to be examined on a case by case basis, and I'm not sure whether the bonuses count with regard to pensions.

Alas, said friend would face significant consequences were I to reveal any specifics. But the position they held was most assuredly not anything close to a "high level politician".

Shrug. Barring some dangerous work with massive OT rolled into their pensions, this is not even close to the norm. Given that they were older, I can't imagine it was deep sea rescue, so dangerous is probably out. OT should not be the norm, so either resources weren't available or/and they didn't have enough staff to fulfill their work obligations...

You made it sound like this was just another public employee boondoggle, like everyone gets insane pensions, and we don't get any other info. That's fine, but for every example you find like this, I can find you 100x where civil servants are being overworked and under compensated, only to be terminated right before contracts require them to be hired on full-time, or their pensions kick in.

I'm not saying that stereotypical examples don't exist. They do. But I'd appreciate if people didn't hold up some anecdotes as examples as to what's wrong with public service, and then claim patient/doctor privilege when asked for details.

It makes for a funny and/or rage inducing story, I guess. So that's good.

[stessier]

Well, I did say it was my first instinct, but to me, taking money earmarked for pensions, leveraging it through borrowing in order to speculate, and then losing it and saying - whelp, sucks to be you, needs a little more investigation, especially when using vehicles designed to get around outlawing this behavior (from the LA Times article):

Some municipal finance officers realized in the 1980s that they could use these investment portfolios to do a form of Wall Street speculation that involves borrowing money at one rate with the hope of investing it and earning a higher rate.

Congress made it illegal in 1986 to issue normal tax-exempt municipal bonds for this type of speculation, but municipalities and their outside advisors realized they could get around this by issuing taxable bonds, like corporations. These bonds come with higher interest rates, but many local government officials have believed they could earn enough from investments to come out on top.

This is irresponsible behavior on both parties ends (at best), and whoever is profiting on it, should be examined EXTREMELY closely, and sued/prosecuted for any hint of misconduct.

Fair enough.

[Anonymous Bosch]

Shrug. Barring some dangerous work with massive OT rolled into their pensions, this is not even close to the norm. Given that they were older, I can't imagine it was deep sea rescue, so dangerous is probably out. OT should not be the norm, so either resources weren't available or/and they didn't have enough staff to fulfill their work obligations...

You made it sound like this was just another public employee boondoggle, like everyone gets insane pensions, and we don't get any other info. That's fine, but for every example you find like this, I can find you 100x where civil servants are being overworked and under compensated, only to be terminated right before contracts require them to be hired on full-time, or their pensions kick in.

I'm not saying that stereotypical examples don't exist. They do. But I'd appreciate if people didn't hold up some anecdotes as examples as to what's wrong with public service, and then claim patient/doctor privilege when asked for details.

It makes for a funny and/or rage inducing story, I guess. So that's good.

Pardon the anecdote, but the city my friend referred to seemed reminiscent of Stockton's situation (e.g. high labour costs and, more specifically, unsustainable union entitlements). Suffice it to say that I doubt Stockton will be an outlier.

[Smoove_B]

This is irresponsible behavior on both parties ends (at best), and whoever is profiting on it, should be examined EXTREMELY closely, and sued/prosecuted for any hint of misconduct.

I haven't read this lengthy article from Matt Tiabbi yet, so I don't know if it has any direct relation to what's going on in this particular town and how it relates exactly to the LA times article you shared from earlier this year:

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated.

[Pyperkub]

Pardon the anecdote, but the city my friend referred to seemed reminiscent of Stockton's situation (e.g. high labour costs and, more specifically, unsustainable union entitlements). Suffice it to say that I doubt Stockton will be an outlier.

Once again, was your friend union? Yes or no. If yes, was it OT, or did they actually earn a regular salary over 200k, and vest at 100%?

I would agree that that would likely be unsustainable. However, if they weren't Union, then don't go talking about "unsustainable union entitlements' when your anecdote has nothing to do with Unions.

[GreenGoo]

Shrug. Barring some dangerous work with massive OT rolled into their pensions, this is not even close to the norm. Given that they were older, I can't imagine it was deep sea rescue, so dangerous is probably out. OT should not be the norm, so either resources weren't available or/and they didn't have enough staff to fulfill their work obligations...

You made it sound like this was just another public employee boondoggle, like everyone gets insane pensions, and we don't get any other info. That's fine, but for every example you find like this, I can find you 100x where civil servants are being overworked and under compensated, only to be terminated right before contracts require them to be hired on full-time, or their pensions kick in.

I'm not saying that stereotypical examples don't exist. They do. But I'd appreciate if people didn't hold up some anecdotes as examples as to what's wrong with public service, and then claim patient/doctor privilege when asked for details.

It makes for a funny and/or rage inducing story, I guess. So that's good.

Pardon the anecdote, but the city my friend referred to seemed reminiscent of Stockton's situation (e.g. high labour costs and, more specifically, unsustainable union entitlements). Suffice it to say that I doubt Stockton will be an outlier.

Well then that's fucked up. As a member of a union under pressure to lower labour costs, 200k pensions are not just an outlier but you'd need another chart from a different planet. I find it hard to blame unions when it seems like the cities are completely bending over for them.

In any case, good luck America.

[Anonymous Bosch]

Pardon the anecdote, but the city my friend referred to seemed reminiscent of Stockton's situation (e.g. high labour costs and, more specifically, unsustainable union entitlements). Suffice it to say that I doubt Stockton will be an outlier.

Once again, was your friend union? Yes or no. If yes, was it OT, or did they actually earn a regular salary over 200k, and vest at 100%?

I would agree that that would likely be unsustainable. However, if they weren't Union, then don't go talking about "unsustainable union entitlements' when your anecdote has nothing to do with Unions.

It was a union position, and IIRC, the regular salary for the position was ~$100K.

[GreenGoo]

Was it in Detroit? Because that sounds like the sort of thing Detroit would do. Or some other organized crime run city.

[Austin]

Well, I did say it was my first instinct, but to me, taking money earmarked for pensions, leveraging it through borrowing in order to speculate, and then losing it and saying - whelp, sucks to be you, needs a little more investigation, especially when using vehicles designed to get around outlawing this behavior (from the LA Times article):

Some municipal finance officers realized in the 1980s that they could use these investment portfolios to do a form of Wall Street speculation that involves borrowing money at one rate with the hope of investing it and earning a higher rate.

Congress made it illegal in 1986 to issue normal tax-exempt municipal bonds for this type of speculation, but municipalities and their outside advisors realized they could get around this by issuing taxable bonds, like corporations. These bonds come with higher interest rates, but many local government officials have believed they could earn enough from investments to come out on top.

This is irresponsible behavior on both parties ends (at best), and whoever is profiting on it, should be examined EXTREMELY closely, and sued/prosecuted for any hint of misconduct.

And the lawyers win!

[noxiousdog]

This is irresponsible behavior on both parties ends (at best), and whoever is profiting on it, should be examined EXTREMELY closely, and sued/prosecuted for any hint of misconduct.

I haven't read this lengthy article from Matt Tiabbi yet, so I don't know if it has any direct relation to what's going on in this particular town and how it relates exactly to the LA times article you shared from earlier this year:

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated.

While the banks are certainly in the wrong and should be prosecuted, the actual damage to the municipalities is negligible. None of that should affect budgets or pensions one iota. Using the example they gave, that's $10,000 per year assuming none of the money is used. That's nothing in a municipality budget.

[LawBeefaroni]

Well, I did say it was my first instinct, but to me, taking money earmarked for pensions, leveraging it through borrowing in order to speculate, and then losing it and saying - whelp, sucks to be you, needs a little more investigation, especially when using vehicles designed to get around outlawing this behavior (from the LA Times article):

Some municipal finance officers realized in the 1980s that they could use these investment portfolios to do a form of Wall Street speculation that involves borrowing money at one rate with the hope of investing it and earning a higher rate.

Congress made it illegal in 1986 to issue normal tax-exempt municipal bonds for this type of speculation, but municipalities and their outside advisors realized they could get around this by issuing taxable bonds, like corporations. These bonds come with higher interest rates, but many local government officials have believed they could earn enough from investments to come out on top.

This is irresponsible behavior on both parties ends (at best), and whoever is profiting on it, should be examined EXTREMELY closely, and sued/prosecuted for any hint of misconduct.

This is what investment banks do. They create products that guarantee a profit for them. They convince marks clients that they can beat the system. The sophistication with which they siphon money and skirt regulations is astounding.

[LordMortis]

It's an "all your eggs in one basket" kinda thing, but really, who expects a city government to completely fail? Especially one that large.

Too big to fail?


My "pension" is all mine. If I leave tomorrow I can take it with me minus all of the ugly penalties for early withdraw and an insane amount of taxes. The only crappy think about it, is that it's tied to an investment firm that is complete shit for investing and continue to lose me money hand over fist. Why isn't risk assumed in government or union pensions? How have they not learned over the last 100 years? The people who made the promises need to be held accountable as best as possible and if that's the city then that's the city, I guess.

In the bus driver thread I saw the questioning of who else gets rewarded for doing a bad job? And every time I turn around I'm seeing people being rewarded for doing bad jobs. Bankers, Auto, People who bought gas guzzlers, People who bought houses they couldn't afford, municipalities.

I don't know how much you can put the hurt on so many people without destroying the country but if we keep doing what we're doing, something else is going to snap.

[GreenGoo]

This is what investment banks do. They create products that guarantee a profit for them. They convince marks clients that they can beat the system. The sophistication with which they siphon money and skirt regulations is astounding.

This was my thought as well, but I don't know enough to comment confidently.

[GreenGoo]

It's an "all your eggs in one basket" kinda thing, but really, who expects a city government to completely fail? Especially one that large.

Too big to fail?


My "pension" is all mine. If I leave tomorrow I can take it with me minus all of the ugly penalties for early withdraw and an insane amount of taxes. The only crappy think about it, is that it's tied to an investment firm that is complete shit for investing and continue to lose me money hand over fist. Why isn't risk assumed in government or union pensions? How have they not learned over the last 100 years? The people who made the promises need to be held accountable as best as possible and if that's the city then that's the city, I guess.

For a bunch of reasons, but I think the most important one is that the payout is funded by taxes more than gains on investment. I have a number of co-workers who are union members and beneficiaries of government pensions who feel pensions should be illegal, due to the nature of guaranteeing future income.

[LawBeefaroni]

My "pension" is all mine. If I leave tomorrow I can take it with me minus all of the ugly penalties for early withdraw and an insane amount of taxes. The only crappy think about it, is that it's tied to an investment firm that is complete shit for investing and continue to lose me money hand over fist. Why isn't risk assumed in government or union pensions? How have they not learned over the last 100 years? The people who made the promises need to be held accountable as best as possible and if that's the city then that's the city, I guess.

In the bus driver thread I saw the questioning of who else gets rewarded for doing a bad job? And every time I turn around I'm seeing people being rewarded for doing bad jobs. Bankers, Auto, People who bought gas guzzlers, People who bought houses they couldn't afford, municipalities.

I don't know how much you can put the hurt on so many people without destroying the country but if we keep doing what we're doing, something else is going to snap.

Does your pension guarantee a certain income at retirement, or is it a distribution of your pension's earnings?

Mine is the latter. It's fully funded but it's also subject to the whims of fate (sounds like yours). I contribute, my employer contributes, the pension's investments [hopefully] add to the total. At retirement or whenever I decide to collect, my distributions are based on what my pension value is.

Governement/city pensions promise a certain income regardless of what's actually in the pension fund. They are not fully funded for these future obligations. That's why managers decide to take risk because they have to turn a "profit" to make up the gap between what they have and what they owe. Or they take on more debt to fund their present obligations. You can imagine their eagerness when JPM or Goldman swoop in on bat's wings and promise them eternal life a can't lose solution.

[LordMortis]

Does your pension guarantee a certain income at retirement, or is it a distribution of your pension's earnings?

It estimates my earnings. There is no guarantee.

Mine is the latter. It's fully funded but it's also subject to the whims of fate (sounds like yours). I contribute, my employer contributes, the pension's investments [hopefully] add to the total. At retirement or whenever I decide to collect, my distributions are based on what my pension value is.

This. I am 100% vested, so I can pull it any time (after I leave the company) but there are penalties associated with pulling it before something like 55, 62, 65, and 72, I think. And the whims of fate are cruel because, quite frankly, I am not educated investing in my own pension and JPHenson's (and in particular our company funded broker) are absolutely terrible (though presumably continue to make themselves a ton of cash).

Governement/city pensions promise a certain income regardless of what's actually in the pension fund. They are not fully funded for these future obligations. That's why managers decide to take risk because they have to turn a "profit" to make up the gap between what they have and what they owe. Or they take on more debt to fund their present obligations. You can imagine their eagerness when JPM or Goldman swoop in on bat's wings and promise them eternal life a can't lose solution.

I "understand" this. Union pensions usually do the same thing. And that's a problem and one I don't get or have sympathy for. How can look at the last 100 years of industrialized society and urban flight and sit back and 1) make these guarantees, 2) expect these guarantees, and 3) count on these guarantees?

And I'm terrified that I'll never retire. My pension would merely seem something that's going to get raped by the government and probate lawyers when I die before distributing a pittance to my nieces and nephews.

[Pyperkub]

Most City/State/Gov't pensions are structured as annuities in that they guarantee a certain level of income post-retirement based on years of service, salary level, position, etc.

I believe most were actually adequately funded until the Savings & Loan crisis, the Dot-Com bust and the financial meltdown.... basically in the past 25 years, since the deregulation and junk bond 80's. I cannot state with certainty. I also believe that the cost of these annuities is a known, but rather that the cost of the also included health-care, which has been growing at an unsustainable rate is probably the piece that is most difficult to provide for in the future.

[GreenGoo]

The Wisconsin pension "meltdown" was artificially created, although the details escape me at the moment. I believe they were raided for other purposes, and then the shortage was used as part of the reasoning behind smashing the unions.

[noxiousdog]

I believe most were actually adequately funded until the Savings & Loan crisis, the Dot-Com bust and the financial meltdown.... basically in the past 25 years, since the deregulation and junk bond 80's. I cannot state with certainty. I also believe that the cost of these annuities is a known, but rather that the cost of the also included health-care, which has been growing at an unsustainable rate is probably the piece that is most difficult to provide for in the future.

They weren't. In the financial circles I read, they have been preaching pension issues for 15 years.

edit: Oh. 25 years. True. Though, it wasn't so much deregulation and such as too optomistic projects for returns on invested monies.

[Pyperkub]

I believe most were actually adequately funded until the Savings & Loan crisis, the Dot-Com bust and the financial meltdown.... basically in the past 25 years, since the deregulation and junk bond 80's. I cannot state with certainty. I also believe that the cost of these annuities is a known, but rather that the cost of the also included health-care, which has been growing at an unsustainable rate is probably the piece that is most difficult to provide for in the future.

They weren't. In the financial circles I read, they have been preaching pension issues for 15 years.

edit: Oh. 25 years. True. Though, it wasn't so much deregulation and such as too optomistic projects for returns on invested monies.

Check me if I'm wrong, but my guess is that they were invested very conservatively, like solely in t-bills back then.

[noxiousdog]

Check me if I'm wrong, but my guess is that they were invested very conservatively, like solely in t-bills back then.

If it were invested in t-bills, they would have made a killing.

But no, generally speaking they thought they could get 7-8% real returns. That shouldn't happen with a conservative portfolio.

[Pyperkub]

Check me if I'm wrong, but my guess is that they were invested very conservatively, like solely in t-bills back then.

If it were invested in t-bills, they would have made a killing.

But no, generally speaking they thought they could get 7-8% real returns. That shouldn't happen with a conservative portfolio.

To be fair, t bills did have that kind of return in the early eighties...

[noxiousdog]

Check me if I'm wrong, but my guess is that they were invested very conservatively, like solely in t-bills back then.

If it were invested in t-bills, they would have made a killing.

But no, generally speaking they thought they could get 7-8% real returns. That shouldn't happen with a conservative portfolio.

To be fair, t bills did have that kind of return in the early eighties...

That's not being fair, that's being ridiculous. No way did they think they'd keep those returns. They did, however, plan on goosing it with higher risk equities. The people managing the money aren't ignorant, or at least they shouldn't be. If they are, there's a bigger problem. But like so many people they get greedy and make bad decisions.

[GreenGoo]

And "goosing" it with higher return investments is completely viable and reasonable, given the period they were investing for. Of course not all, or even most of the money should have been in higher risk/return investments, but some, to tweak and increase the overall return a little, sure.

Now if you are doing your planning based on your entire portfolio making that increased return in perpetuity, then we have a problem.