No, not Tom Cruise in Top Gun; although the risk and rewards may be similar.
This story link regards an Illinois retirement fund, which may be taking investments into the "Dangerzone".
Most folks here are aware of funding problems with some organizations. I personally wish these situations were otherwise; but such is the situation from poor planning, abuse, arrogance and the impact of a financial crisis that was and still is more than a recession.
The linked write is quite long, but the overview of the problem and solution? is within the first few paragraphs of the write.
http://www.chicagobusiness.com/article/20111217/ISSUE01/312179972?template=printartRegards,
Catch
Comments
I am aware that IL, MS, PA and one or two others do not tax retirement income. And some States of course have no State Income Tax at all. And Hawaii does not tax MILITARY or FEDERAL pensions. (Why has no one challenged this as discriminatory toward us plain civilians?)
Merry Christmas,
Derf
Whelp, I can't speak for what has happened in Mass, but here in Michigan, until this coming Jan 1, ALL pensions were exempt from state income tax. Starting 1/1/12, 4.5% will be applied to all pensions - public and private. Wifey will have to start paying on her phone company pension and I on my state pension.
As for amounts, I was a lower level manager (DeptMgr 13) in state civil service with 31 years, and my pension is around $35K. I retired last year. Now this is state gov't mind you, and it was almost 18 years ago at the state level, that they started to phase out the DB pensions. At that time, anyone with less than 5 years, and anyone who chose, was switched over to a DC pension (401K). State puts in 4% and will match your 3% (3 gets you another 7 for 10). This is your pension, and you can still contribute to either or both a 401 and 457 within appropriate limits. More senior employees at that time, if they chose to switch, were bought out and the monies used to seed their 401 pension. I didn't care for my buyout amount and was already actively managing both my 401 and 457 so I stayed. This was fortunate due to the subsequent meltdowns. Folks who switched got hammered.
Again, can't speak for Mass and it's well known that Illinois is well and truly f*cked. Seems they're only about 50% funded on their State pension. Geez, here in Michigan, we're over 80% funded . . . and as mentioned, there is a light at the end of the tunnel.
Here in Michigan, the problem is with some of the local and county gov'ts. There are some with 2.5 to 3.5 multipliers (mine was 1.5 and previous early outs only sweetened it to 1.75.) This is the nut because the formulae are normally avg salary * years * multiplier. Well, the other trick that some communities have allowed is called 'spiking'. This is where they only use the last year's salary (we use the average of the highest 3 years) and they will cram their overtime AND unused leave onto that last years salary. Hell, there are places where some cop or firefighter have been earning around $60K, but with overtime and unused leave, they can boost that final salary to over $100K and With a multiplier of 3 you're looking at an annual pension around $100K. It looked like this is what happened in RI and I think Valperaso (sp?) out in California. I don't know what the formuae are in Ill or Mass, but it's got to be something pretty crazy to generate 'mostly $100K or more for public workers' as Mo states about Mass. Geez, Lansing has a 2.5 and Detroit is on the verge of bankruptcy due to this and sundry other legacy costs.
And we haven't even talked about benefits. In the public sector, they are also being watered down - just like the private sector. If you've followed this over the years (my wife was also a manager at MaBell, so I did), you'll recall that way back in the 50's and 60's during the golden age, the private corporations led the benefit parade - us with the car companies, others with other mfg companies and the public sector trailed all the way up the ladder. The private sector started cutting back in the 80's and again, the public sector lagged but has been trying to catch up ever since. We started cutting state benefits in 1983 with a phase out of paying for unused sick leave at all (had been paying 50%).
Now there are pockets of resistance at both individual public and private employers, but the pattern is pretty universal. The model of the future employer (both public and private) is to pay for active duty health insurance, but only permit or perhaps even assist in a medical spending acct to pay for medical needs in retirement. Same/same with a pension - DC 401K. Organization is left with no legacy costs.
Is this fair? feh. What's fair. It is what it is. So long as employees know this is how it works, they have ample opportunity to optimize their choices.
Where things are not quite so rosey, is when you are forced to switch late in your career OR your company uses bankruptcy (airlines, et al) to break their promises. At that point, if you're lucky, the Feds backstop your pension and you get some percentage. Not lucky - you get nothing.
When you're north of 45 or 50, this can ben devastating.
And if you really want to have this arguement brought full cirlce, these are some of those Unfunded Liabilites, I've been preaching about for quite a few years. Geez, if the Feds owe over $100 Trillion, what about the state and local gov'ts?
All y'all better cover your asses.
peace,
rono
"Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers"
Ellen Schultz
I have heard Ms Schultz speak on C-Span; I have not read the book and cannot on the basis of a brief presentation comment on the issues presented, but I think it is worth a read for those "north of 45 or 50" in particular. (Or for a quick intro you can also go the the C-Span2 website and view her presentation.)
Maurice,
Is it fair to characterize this as a conspiracy of the few against the many? As I recall, there was some additional factors at the time companies were allowed to switch from defined benefit to defined contribution plans:
--since lots of Americans change employers, defined contribution plans (in 401k) had the advantage of being portable, which appealed to a lot of people who never had enough years to be vested in defined benefit plans;
--defined benefit plans sound great . . . except when the company goes bankrupt and the guarantee becomes worthless (think Enron);
--retirement investments could be made in a much broader range of assets and not just the stock of the company, which was very often the basis for the defined benefit;
--and BOTH major parties supported these conversions.
I'm not sure it's helpful to see this history as having been the result of a conspiracy.
Similar movements have been ongoing over the past decade:
--the (defeated) effort to make Social Security into a defined contribution plan
--ongoing proposals to voucher-ize Medicare
Much of the problem is the obfuscation created by special interests. I really don't see that as a conspiracy as much as human nature. If I'm in a position to rig things in my favor, and the risk analysis and cost/benefits numbers look good, most people, and institutions will. Ah, institutions, there's the rub. How much life have corporations been granted and is that corporate being, if you will, friends or enemies to mankind and the planet? Perhaps we need something like the 3 laws of robotics for corporations. Ah, and the PAC money - and thanks to the court - without limits?
Money is going to do the talking, so quite honestly, what we need is full disclosure or all campaign contributions or advertising.
Just saw Walker and he states what we all know - that washington is disfunctional.
and so it goes,
peace,
rono
I've appreciated Fund Alarm for years, and MFO more recently, because people come here to pose questions, share useful data, offer investment ideas, and help each other to make better decisions.
My response to you was posted in that spirit. Hope you'll see it as such.
Well put, Rono. Those certainly are some problems that divert the political system from focusing on the needs of the majority of Americans.
Is it fair to say that Washington (and any political system) will always be dysfunctional to some extent? After all, our American constitutional system was designed in order to make it difficult to bring about change without broad consensus, and to require compromise, wasn't it?
If so, don't we need to get involved in order to tilt it more in the direction of the needs of ordinary people? (I guess what I mean to say is that it's not enough for us to wring our hands in despair.)
Max,
I'm really surprised that you're so cynical about our lot!
Sure, there are special interests and competing forces. That's what a political process is all about. But even if the past decade has been a dismal period, each generation has been much better off than the previous one, hasn't it?
Surely, it's not true that "we'll always come out the losers"! Despite inequalities and injustices, the balance shows that we can keep on moving forward, doesn't it?
Look up the fictional (Mel Brooks) Max Bialystock character in Wikipedia and one reference says that all he cares about is making money. LAUGH. Here we are together, comparing notes about how to do just that, in MFO. But how much is enough? Our common humanity forces that question before us. "Riches are the savings of many in the hands of one." ---Eugene Debs.
In other news, there are going to be lotsa people who are glad to see two Matthews funds opening to new investors again!