Our Legislators gave a plum called "gain sharing" to the state pension Funds in 1998 that wasn't supposed to cost anything to the taxpayers. Now the latest estimate is that it will cost an additional $9 billion over 25 years. And the proposals to "fix" the problem are generous to the workers, but hard on taxpayers. Seattle Times on the plan:
The Legislature approved a plan that increased retirement benefits for government workers when investment returns exceeded expectations. Basically, the law says that when the average rate of returns exceeds 10 percent over four years, half of that excess profit goes to workers through enhanced retirement benefits.The current estimate is that it will cost an additional $9 billion over 25 years.For example, some workers get cash payments into individual retirement savings accounts. The other half of the excess profit gets plowed back into the pension fund to help protect against future downturns in the market.
Gain-sharing created several problems for the state pension system, but the biggest one is that it effectively reduces the rate of return from state investments over time.
When the stock market is hot, gain-sharing skims off cash that could otherwise offset future losses.
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The estimates, which deal with the cost of a pension perk that shares stock-market profits with retirees, predict a tab of more than $9 billion over 25 years if the benefit is kept. That's about four times what state officials were contemplating in December.They know they have a problem and are addressing it. I saw pre-session statements by several senator and representatives that tackling pension problems was a priority. I assumed they were talking about this."It's a much bigger price tag than people realized," said Senate Majority Leader Lisa Brown, D-Spokane, referring to recent research done by the state Actuary's Office.
Late last year, state officials estimated the cost of the benefit, called gain-sharing, at about $2.3 billion. However, at the time, lawmakers were focused on one plan in the pension system, a plan that covers mostly workers who have already retired. The projected cost of gain-sharing ballooned after a new state study took a thorough look at how the benefit affects the entire pension system.
So what is proposed? First, to do nothing.
House Majority Leader Lynn Kessler, D-Hoquiam, said House Democrats are mixed about whether to tackle the problem this session or wait until next year. "There's a concern with some folks that we haven't had enough time to cook it and figure out what to do," she said.The two proposals on the table would also costs billions. First,
Senate Bill 6795 would authorize a pension cost-of-living increase for some workers and a guaranteed rate of return on certain investments for others.... The estimated total cost to state and local governments combined could be close to $2 billion over the same time period. (25 years)My retirement program has no cost-of-living increase ever. Should we give state employees something we don't get?
Now, keep a straight face. The second proposal to get the state out of this fix is early retirement at full benefits. A teacher who starts work at age 22 could retire at age 56 with the pension intended for someone who worked until 65.
Another measure, Senate Bill 6445, commonly referred to as the "rule of 90" bill, would let workers combine their age with the number of years they've worked in government service. If the total reached 90, they could retire with full benefits. That would let some longtime government workers retire in their mid- to late 50s.That's replacing a big problem with a smaller one. How about returning to what we taxpayers thought we had - a system that gave a decent retirement to civil servants who worked until 65? Posted by Ron Hebron at February 04, 2006 04:20 PM | Email This
Well, our silence may be golden,in that, the State of Washington may well ultimately default on pension obligations.
At some point, the game is checkmate. Remember the Seattle latte tax......even fools ultimately rebel...
Posted by: THS on February 4, 2006 06:12 PMI was promoted to one of those cushy "management" positions 9 years before retirement, which allowed me to earn about $800 less monthly ($3485) than a person with a badge and a gun holding the same exact position.
I am happy with my retirement, and consider it fair, if less than generous. I would hope you would research a little better before you paint all retired state employees with the same brush.
Posted by: Brian on February 4, 2006 06:53 PMAnd I visited Mexico, once in 1959 as a private in the National Guard (I know, another cushy state job.) Haven't been back.
At the risk of beating a dead horse, I had never heard of "gain sharing" until I had read about it on the internet. The "gain sharing" post was what I was responding do. I did not intend to defend being a retired state employee.
When I went to work for the state in 1962, I "contracted" with the state (later confirmed by the courts as a contract) that I would pay 7% of my salary into the state retirement system, and the state would contribute 7%. This, in addition to the Social Security taxes paid by both parties.
The retirement system later( I believe in the 1970's) was deemed too expensive, and PERS II came into being. Later there was another iteration of PERS. But the state could not renege on their promise to existing PERS I employees. In any event, for a number of years, until I was eligible for medicare, income tax, health insurance and other deductions took about half of my retired pay. I also pay income tax on most of my retirement and when living in Oregon a few years ago, I paid Oregon State income tax.
I don't doubt that there are corrections needed in the current system. I just want to see this accurately reported. Who does gain-sharing apply to?
Posted by: Brian on February 4, 2006 10:28 PM
And another example of what happens when government tries to solve a problem.
Posted by: Jeff B. on February 5, 2006 12:35 AMBlue State Economics.
Posted by: Jeff B. on February 5, 2006 12:40 AMIf you get a degree and you get a teaching job at 25 you work till 75 to get a full pension?
AEDs in the classrooms :)
HMMMMM
Posted by: GP on February 5, 2006 08:08 AMHaving 80 or 90 points (age + years of service) is not uncommon in corporate pension plans and allows one to retire before age 65. I do believe your pension is reduced a couple percent for each year you retire early.
I have reviewed the above posts between Brian and April. Brian played by the rules and qualified for early retirement after 30 years. It also appears that by being salaried management Brian earned less per month than an hourly employee in a nonsupervisory position.
GS's post that the Washington State Pension Plan needs to be evaluated for stability and should be discontinued is probably correct. Corporations have shifted from pension plans to 401ks et al. We probably need to have the government/not for profit 401k equivalent for state employees. Participation in these plans should be mandatory and funds should not be able to be withdrawn until age 62 1/2 or age 65.
Just as you cannot take your pension funds early I think you should have to wait till age 62 to 65 for access to the 401k et al to ensure the funds are still there when you "retire".
I can empathize with April's anger. I fund my own retirement and healthcare. I had excellent coverage with Hughes Aircraft and Boeing but decided to leave because of the bureaucracy and felt my brain turning to mush. "Welcome to the machine" is the riff from Pink Floyd's Dark Side of the Moon. The health and retirement benefits were excellent. Another absurdity was Hughes would buy me a MBA and gave me a raise after I got the degree.
Paying for my own health insurance ranks me more than retirement benefits. I had Principal Mutual's individual plan starting in 1989. In Nov 1995 Principal Mutual cancelled individual plans with one month's notice. Deborah Senn, Insurance Commissioner did nothing. I purchased individual coverage from Blue Cross. Even though Blue Cross monthly premium went from $125+ to $800+ a month for individual coverage the past 10 years, getting BC to pay physicians and healthcare providers is tedious and time consuming.
At least the current Washington State Insurance Commissioner slapped down Guppy's plan to take not for profit Blue Cross public and give exorbitant stock options to ten (10) people and mimimum to the employees at Blue Cross.
In looking at the State elected positions ignored the party and vote for the person with experience.
The current auditor, AG, and insurance commissioner are good. The SoS is not good
"Basically, the law says that when the average rate of returns (sic) exceeds 10 percent over four years, half of that excess profit goes to workers through enhanced retirement benefits."
I agree that gainsharing is not a good idea, although I give the legislature credit for using a four-year "smoothing" rule to eliminate any windfall profits. I am surprised, however, that the estimated cost is so high, especially given that, in broad terms, there has been no four-year period since the inception of the program where it should actually have kicked in. Assuming that the Seattle Times' description, quoted above, is accurate, of course.
Or at least that's what it looks like, using the S&P 500 as a proxy for the investment porfolio of the state pension fund. The actual ROI for the entire period from January 1, 1998 to today is less than 4%; even for the best period since then (1998-2002), the ROI is less than 5%.
If our state pension fund is outperforming the market by 5+% per year on a long-term basis, that would be a better track record than 90% of the mutual fund managers out there, so I would be very surprised if that were the case.
Posted by: HT on February 5, 2006 09:34 AMI still think it would be helpful to PUBLICLY show the names, benefits and benefit calculations of those who have successfully played the game and milked the system in the name of being a "PUBLIC SERVANT". You would puke. I've seen some of these. The newspapers have published the TOP WASHINGTON STATE SALARIES. Salaries are only for one year at a time. It's the PENSIONS that are the gift or GRAFT that keeps on giving folks. Ain't it great to live in ignorance of a State Government that has been F*cking us for decades and we've only seen the tip of the iceberg???
And you bet, Republicans have done it too. Let's just get the names, calculations and pensions out there for ALL to see. They are PUBLIC INFORMATION....although you may have to ask several times to get them. If someone has the computer capacity, it would be a lot of fun to play with the data and "educate" the State taxpayers. Something tells me that the newspapers would ignore the top scumsucking LEFTY's and focus on the R's if they even had the gumption to peek at this....which they obviously DON'T!!!
Ignorance is bliss. The MSM is charged with holding those in power accountable.....NOT!!!!!!!
Who ever heard of any private retirement having this kind of perk, despite the massive gains these plans saw at one time. The companies did not distribute these windfalls to their retirees, they just quit needing to fund the plans.
We could save Billions of our hard earned tax dollars eliminating this perk!
Posted by: GS on February 5, 2006 01:19 PM
(a) pay into PERS, AND
(b) pay into Social Security (hopefully April C. isn't going older than I and will refuse SS and/or the Medicare that I pay for in addition to PERS), and
(c) pay mandatory Union dues that go to help elect 'progressive' causes which care not one whit about whether (a) or (b) survive until retirement.
(d) watch a group of 'retired' employees come back time and again (with the assistance of former subordinates) at full pay for 1079 hours/ calendar year (i.e. just under the PT threshold) to supplement their retirement.
Posted by: FT on February 5, 2006 02:19 PMYour benefits aren't necessarily based upon the money that you (specifically) were taxed and 'held' for you as some type of 'retirement' being invested a separate "April C." account, but the SSA will identify what the amount of your benefits (its potential 'liabilty').
Example 1: The very first recipient of Social Security apparently worked less than one month before she retired. Now, her monthly SS check wasn't much (like your statement of potential benefits), but she drew it for years. Now, that money came from...where? Rates of return on investments aren't THAT good.
I've seen that happen... someone who paid (comparitively) little, drew out a SS check for decades after she retired...getting money 'out' far in excess of what could have been put into the account, even with unprecedented rates of return. Strange that, despite living to 98, her check was never 'cut' (which it might have if it hadn't been regularly 'replaced' with funds from current workers).
Example 2: I know from personal experience that Social Security 'funds' withheld from one worker's paychecks 'disappeared' when he passed away before he reached retirement age, so (a) he collected none of those funds, and (b) neither did any of his heirs
(heirs which SSA was well aware of, since if he had an under-18 heir, they could have recieve some limited benefits from his having contributed to the system -- unfortunately, his youngest heir had already turned 22...so the argument about 'they didn't know where to send his benefits' won't wash)
-- including one FT -- collect one dime of that money. If it were an equivalent to a "KGL" retirement account, with HIS schedule of potential benefits dutifully sent each year to his private employment/post-military career mailing addresses in PVE, CA, Redondo Beach, CA and Fresno, CA, then the money went...where?
Ans: The funds stayed in the system to continue to fund the benefits of other persons (assuming that the money WERE in a 'SS lockbox' and not used for other purposes and replaced with an IOU by the Feds) who had retired and were (or still are) drawing benefits.
That's one of the reasons that some don't want to change the system, since that's money that can be transferred to keep the payments going without a general increase in the withholding rates... or a change in the withholding 'cap'.
So, if you are younger than I, thank you -- your withholding is going to help support those of us who reach retirement before you.
Posted by: FT on February 6, 2006 04:34 AMDemocrats alayws seem to counter that Social Security is an insurance program and not designed for individual control. Well, they are at least partially correct. The aspect of Social Security that covers survivors' benefits and the aspect that cover personal disability are certainly operating under the insurance principal. People are essentially pooling the risk of early death of the worker (in the case of survivors' benefits)and the risk of disablity (in the case of disability payments). These two programs under Social Security are insurance just like auto insurance: premiums are collected, nobody gets anything unless something bad happens. That's all insurance is, in its simplist form.
There is a third portion of Social Security payments that relate directly to retirment, and this is the segment of Social Security that I beleive should be turned over to individual control. People at least ought to be given the choice as to where this part of their total FICA tax goes. Of course, I don't have a problem with people choosing to stay with the government in control of the funds if they so choose. But there are people out there who would prefer to manage their own money, thank you very much!
Pehaps one of the biggest benefits of privitization of the retirement portion of Social Security is the ability of passing private accounts to one's heirs. Under the current law, only a spouse can continue in some manner with a decedent's Social Security monthy benefit. If that spouse dies shortly after the first recipient, heirs get nothing but a $255 funeral benefit.
Why the Democrats are so ardently against this baffles me. My only guess is that they do not trust people to take care of themselves and manage their retirement without massive government oversight. I say let's let the individual choose what he or she wants to do with these funds.
Posted by: Libertarian on February 6, 2006 11:35 AMBut before they do, they should consult with some economists and financial managers who understand pension law and try to do better the second time around.
But, being Democrats, they probably would do worse trying to put in a fix. The unions have the legislature by the b**ls and know there won't be any substantive changes.
The taxpayers are screwed again. Guess why I say that we need to Clean House?
Posted by: Clean House on February 6, 2006 09:05 PMThe $366 Billion Outrage All across America, state and city workers are retiring early with unthinkably rich pay packages. Guess who's paying for them? You are.
By Janice Revell REPORTER ASSOCIATES Doris Burke, Joan Levinstein, and Patricia Neering
May 31, 2004
(FORTUNE Magazine) – Let's just call it what it is: gaming the system. And it's a game that has already resulted in skyrocketing tax increases and the loss of public services across the country--from the shutdown of libraries and community centers to the gutting of many local police and fire departments. It is also a game that is played in the nether regions of public finance, in the fine print of lengthy contracts that hardly anybody sees. As with so many other recent scandals--from Dick Grasso's $140 million pay package to CEOs of bankrupt airlines padding their own retirement accounts to big corporations manufacturing "earnings" that don't really exist--this one has to do with the generally ignored realm of pensions. But here the beneficiaries of the shell game may come as a surprise: school superintendents, librarians, sanitation workers, county clerks, and a host of other public servants. By now you can probably guess who's paying for it. That's right: you. (more) use link!