How will unfunded "pensions" affect the local economy?

User Forum Topic
Submitted by phaster on September 1, 2014 - 7:48am

Here is a simple question, how do you think unfunded pensions affect the economy, specifically RE prices?

To illustrate specifically what I am concerned with, below is an outline of a local unfunded public pension issue....

*** WHAT YOU NEED TO KNOW ABOUT PUBLIC PENSIONS IN SAN DIEGO ***

A recent wall street journal article essentially said the SD county pension system was using derivaties to manage their portfolio.

"Simply put, it could have a market exposure of $20 billion despite only managing half that amount."

http://online.wsj.com/articles/san-diego...

To show why the current SD county pension "operations" is a bad idea, google "buying stocks on margin" and check out the first search result.

The math is pretty simple to understand (just add "000,000" to the following $ figures):

A Buying Power Example
Let's say that you deposit $10,000 in your margin account. Because you put up 50% of the purchase price, this means you have $20,000 worth of buying power.

http://www.investopedia.com/university/m...

Returning to our example of exaggerated profits, say that instead of rocketing up 25%, our shares fell 25%. Now your investment would be worth $15,000 (200 shares x $75). You sell the stock, pay back your broker the $10,000, and end up with $5,000. That's a 50% loss, plus commissions and interest, which otherwise would have been a loss of only 25%.

Think a 50% loss is bad? It can get much worse. Buying on margin is the only stock-based investment where you stand to lose more money than you invested. A dive of 50% or more will cause you to lose more than 100%, with interest and commissions on top of that.

http://www.investopedia.com/university/m...

A good basic math education, is all that is needed to understand the "downside" risk of a margin account (but all the reports in the media so far do not show this simple "downside" math).

Adding the "options" account variable complicates matters, but kinda explains the lackluster single digit portfolio returns of the SD county portfolio (i.e. the various options w/in the portfolio of "puts for downside protection and "calls" to try and win big on the upside" cancelled each other out - so far, in a market that has gone up), the big unknown is how the "options" are structured within the portfolio and how it react if there is sudden and dramatic turbulence.

Consider all it might take for the "local" house of cards to fall is some kind of foreign black swan event that drops the market towards 10% down, and because of leverage things could suddenly get ugly for the local economy (for example LTCM, which happened in a less complex world, now one has to factor in some thing akin to high speed robo traders, that will sell off a position because of a trigger event, thus converting a "paper" loss into a real loss for the pension portfolio??).

10 billion dollars placed into a margin account to play the options market IMHO is "insane" if anyone was investing their own money, but think I uncovered the motive.

The reason the county pension board might have taken such drastic action is the change in accounting rules which put public pensions on the balance sheet next year.

Few even in the investment community know that:

PUBLIC "Pension liabilities must be included on the balance sheets of the agencies responsible for funding their employees' pensions. Until now liabilities have been buried in arcane footnotes that few read and even fewer understood"

http://articles.latimes.com/2014/apr/09/...

NOTE if San Diego's pension board margin-option strategy fails, the tax payer is on the hook!

One other thing, there is a youtube video (starting at 3:24), where san diego is mentioned at the being at the top of the list (for being the deepest in the hole overall for unfunded pensions and having an unfunded health care plan)

https://www.youtube.com/watch?v=BRr49iAgI9g

If pensions and health care costs have to both be included on the balance sheet, the bond markets are in for a real shock which will ripple through the economy and affect everyone on main street.

If you want understand why there is a problem with pensions in San Diego, read the history of pensions at the state level (which started out well managed and over the years turned corrupt and mismanaged):

http://www.city-journal.org/2013/23_1_ca...

The local(s) (city and county) basically followed the CalPERS model, and what might be telling is the former CEO of CalPERS just plead guilty to a fraud, corruption charge

http://www.latimes.com/business/la-fi-ca...

Submitted by livinincali on January 11, 2016 - 8:11am.

bearishgurl wrote:

harvey (aka pri_dk), if you think there are only TWO Piggs who grasp this concept, you need to put on your thinking cap. Let me clue you in, here. There are several more Piggs here who are currently working FT (for the gubment) under the premise that they will eventually be due a pension under a "defined benefit plan."

I'm truly sorry for you that YOU DIDN'T CHOOSE to attempt to "qualify" for one of these eligible positions in line for a(n eventual) DB plan upon retirement. However, that decision was YOUR CHOICE! You COULD have elected to "jump thru the proper hoops" in attempt to get hired ... alas but you didn't! Thusly, you have NO RIGHT at this late date to condemn those persons who have served their qualified (faithful) service so as to earn their current pensions.

It might be smart to have not worked under the promise of a DB plan. If it's going to be cut in the future and based on the math of most of these plans it will probably have to be cut in some form, then you would have been better off not taking the promise of deferred compensation. The risk pool concept of a DB plan is good for most people. The problem is the benefit is not calculated as Total Amount put away plus a reasonable compounded interest rate (maybe 5%) and then distributed a rate rate similar to an annuity. It's generally something much higher than that. That's why there's a problem. It's the difference between the total amount put away plus investment returns versus the amount that was promised to be distributed.

Submitted by FlyerInHi on January 11, 2016 - 10:49am.

I kinda agree, livin Some full benefits are costly and useless.
For example health care. I would rather have basic, rationed, universal government run health care in very utilitarian but competent hospitals, with long but doable wait times. The cost of health insurance that my employer incurs would instead be paid to me in cash that I could invest and do whatever I want.

Submitted by bearishgurl on January 11, 2016 - 12:06pm.

harvey wrote:
. . . Here's an actual fact: I did have a position that offered a DB pension. I was an officer in the US Army, commissioned through a full ROTC scholarship - a process that requires a few qualifications! . . .
harvey, did you have the required number of years of service to actually vest in your DB pension?

If not, why not?

Are you currently collecting military retirement, and if so, at what age did you begin collecting it?

If not, will you collect military reserve retirement at age 60?

YOU are one of the biggest complainers (if not THE biggest complainer) on this board regarding others' DB pensions they earned over decades of service. Or any other gubment benefit someone else is eligible for, for that matter. The Piggs need to know whether to consider you the pot ..... or the kettle.

Yes, YOUR personal situation is absolutely relevant here! Not sure if your continual attacks on gov workers' pay and pensions are just envy rearing its ugly head ... or what exactly .... It's just weird.

Submitted by FlyerInHi on January 11, 2016 - 12:25pm.

BG, it's not envy. The reason for complaining is that services are cut while salaries and pensions are not; all the while budgets are growing.

There are better, more efficient ways of rendering services to citizens, which which what reforms is all about.

It's not all government. Private health care needs reform too so the sector doesn't keep taking a larger share of the economy.

Submitted by harvey on January 11, 2016 - 12:53pm.

bearishgurl wrote:
harvey, did you have the required number of years of service to actually vest in your DB pension?

On multiple occasions you have claimed that I and others were not able to qualify for job that offered a government pension. You previous post makes the claim once again:

Quote:
You COULD have elected to "jump thru the proper hoops" in attempt to get hired ... alas but you didn't!

I did "jump through the hoops" - I even jumped out of airplanes!

So I've proven you wrong (not that it's much of an accomplishment, nor do I expect you to comprehend...)

Quote:
YOU are one of the biggest complainers (if not THE biggest complainer) on this board regarding others' DB pensions they earned over decades of service.

Uh, no.

I've never "complained" about your pension, or any individual's personal financial situation on this forum.

My position is that government defined benefit pensions are bad policy. It's not personal. It has nothing to do with my vesting or your vesting or anybody in particular.

The ongoing pension discussions here are a political debate concerning government policy.

Quote:
Yes, YOUR personal situation is absolutely relevant here! Not sure if your continual attacks on gov workers' pay and pensions are just envy rearing its ugly head ... or what exactly .... It's just weird.

No, NOBODY's personal situation is relevant here.

This is a real estate and economics forum. Government pension costs are a relevant and timely topic of discussion here. Read the title of the OP for this thread. Discussions about the impact of pension costs on local real estate are entirely appropriate.

What's not appropriate are false claims about my personal situation.

Your posting history in this thread alone demonstrates that you are not capable of understanding the difference between substantive policy debate and ad hominem arguments.

Here's what's weird: The fact that you've been sharing personal details of your life and career while posting detailed yet unfounded speculation about others for so many years.

Submitted by bearishgurl on January 11, 2016 - 1:09pm.

So, in reading between the lines, here, harvey, if YOU'RE actually collecting a gubment pension yourself, do you feel it's "bad policy" to pay YOU every month if the Federal Gubment is trillions of dollars in debt??

What you DIDN'T answer here is very telling.

Submitted by harvey on January 11, 2016 - 1:26pm.

bearishgurl wrote:
So, in reading between the lines, here, harvey, if YOU'RE actually collecting a gubment pension yourself, do you feel it's "bad policy" to pay YOU every month if the Federal Gubment is trillions of dollars in debt??

What you DIDN'T answer here is very telling.

I don't have a government pension. Go ahead and speculate otherwise. Fabricate my entire life story if it makes you happy. I really don't care what you choose to "read between the lines."

Your fixation on other poster's personal situations is pretty creepy.

Submitted by bearishgurl on January 11, 2016 - 1:45pm.

harvey wrote:
bearishgurl wrote:
So, in reading between the lines, here, harvey, if YOU'RE actually collecting a gubment pension yourself, do you feel it's "bad policy" to pay YOU every month if the Federal Gubment is trillions of dollars in debt??

What you DIDN'T answer here is very telling.

I don't have a government pension. Go ahead and speculate otherwise. Fabricate my entire life story if it makes you happy. I really don't care what you choose to "read between the lines."

Your fixation on other poster's personal situations is pretty creepy.

I don't have to "fabricate" anything about you, harvey. You've laid it out here for us, yourself. You just posted that you accepted a gubment position with a defined benefit plan and now you're essentially saying that you either didn't vest in the plan or are not yet eligible to collect the pension you will be due.

If you didn't vest in that DB plan for which you took a position which required your highly specialized skillset, I'm sorry to hear this, harvey.

There is a reason for everything. I'll just leave it at that.

Submitted by all on January 11, 2016 - 3:23pm.

bearishgurl wrote:

There is a reason for everything. I'll just leave it at that.

No! Not another cliffhanger!
Let me guess, John Snow's spirit lives through his pup?

Submitted by FlyerInHi on January 11, 2016 - 4:42pm.

bearishgurl wrote:
So, in reading between the lines, here, harvey, if YOU'RE actually collecting a gubment pension yourself, do you feel it's "bad policy" to pay YOU every month if the Federal Gubment is trillions of dollars in debt??

What you DIDN'T answer here is very telling.

Actually, this issue is like the paradox of thrift. What is good for individuals is bad policy.

Intellectually honest people are able to separate their own interests from policy. Warren Buffet is a billionaire who does that pretty well.

Submitted by Parabolica on January 11, 2016 - 7:56pm.

The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. They are consigned to investment company sharks by their ignorance and the limited choices available to them in their company 401(k) choices.

Harvey, how does the average person taking your prescription save for their own retirement? Do they know about index funds? Do they get idea of changing the equity/bond ratio as they approach retirement? If they look for advisers can they avoid the sharks? I say that they cannot begin to match the returns and stability provided by professional managers of defined benefit programs. Do you see it differently?

The corporations were allowed to strip workers of defined benefit plans, moving liabilities off their books, and giving employees the 'freedom' to chart their own financial course. It is like handing someone a parachute and kicking them out of a plane for the first time so that they may have the 'freedom' of learning how to reach the ground without perishing. Those stripped of defined benefit plans are angry that their employees, government workers, have not been been rendered naked as well. Understandable, but not pretty.

Submitted by paramount on January 11, 2016 - 11:22pm.

Parabolica wrote:
Those stripped of defined benefit plans are angry that their employees, government workers, have not been been rendered naked as well. Understandable, but not pretty.

I'll admit I am very unhappy about loosing my DB plan - my company took away our DB plan 2008-2009 - with barely a wimper (if even that) from employees.

I'm hopeful though we'll start to break public unions with Friedrichs v. CTA.

Submitted by livinincali on January 12, 2016 - 8:17am.

Parabolica wrote:
The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. They are consigned to investment company sharks by their ignorance and the limited choices available to them in their company 401(k) choices.

Harvey, how does the average person taking your prescription save for their own retirement? Do they know about index funds? Do they get idea of changing the equity/bond ratio as they approach retirement? If they look for advisers can they avoid the sharks? I say that they cannot begin to match the returns and stability provided by professional managers of defined benefit programs. Do you see it differently?

The corporations were allowed to strip workers of defined benefit plans, moving liabilities off their books, and giving employees the 'freedom' to chart their own financial course. It is like handing someone a parachute and kicking them out of a plane for the first time so that they may have the 'freedom' of learning how to reach the ground without perishing. Those stripped of defined benefit plans are angry that their employees, government workers, have not been been rendered naked as well. Understandable, but not pretty.

I don't blame companies for moving the liability off there books. Are there any cities or government organizations that are in really good shape with their define benefit pension plan? The only thing that would make those government workers whole is an unlimited tax payer backstop. I think it's virtually impossible to offer a define benefit plan that is somehow based a the last few years of salary while working and includes a variety of incentives to attempt to cheat that calculation.

If government employees want a shared defined contribution risk pool that pays out some defined benefit based on the total funds available and sound actuarial investment returns that's fine with me. But if there's problems within the fund let the risk pool of employees participating in such a plan bear the risks of poor performance or under contributing. That seems like a fair compromise to me. If the government employee union opts for higher payouts in retirement then contribute more during working years. If the funds are poorly invested then let those employees within the fund chose if they want to contribute more or accept lower benefits. Why should they be some special class of citizen that's gets a tax payer funded bailout in retirement.

Submitted by harvey on January 12, 2016 - 8:58am.

Parabolica wrote:
The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement.

This is a problem, but there is no ideal solution.

Retirement as it exists today is actually two separate concepts:

1) As a society we want to insure the elderly against poverty.

2) Many people want to reap the rewards of hard work later in life by quitting their jobs and enjoying what they have accumulated.

Retirement is two things: insurance and a reward.

The two concepts overlap for sure, one needs to plan and save to achieve both.

I think government should be mostly responsible for item #1. As a society we can ensure that nobody find themselves destitute in old age. This guarantee should apply equally to everyone. We don't need to divide society into public and private-sector groups.

For item #2, everyone is on their own. Some are going to be better than others for sure, but the idea of accumulating a nest-egg over many years isn't that hard to grasp. There is enough regulation and information about investing available to protect all but the most naive from "sharks." There really is no other way.

We already have a solution to #1. It's Social Security. Not a perfect plan but it has been effective for nearly a century (probably longer than any other long-term financial program in history) and SS can continue indefinitely with occasional adjustments due to demographics. Social Security was always intended to be an insurance plan, not a retirement plan: it protects against poverty in old age. Despite the dire predictions we occasionally hear about Social Security, there are very credible and fair proposals to fix it.(Of course, medicare is also part of the solution.)

The approach is simple: Put everyone on Social Security, public and private sector. No special class of citizen. Keep Social Security transparent like it has been for many decades and we are all in it together. It works.

For those that want a lifestyle in retirement, then they are on their own. Save, invest, plan. Best of luck. It's certainly doable, millions are already managing it just fine.

There is simply no need to have a class of citizens who are shielded from long-term investment risk at the cost of everyone else. The absurdly complex, corrupt, and broken government defined-benefit pension systems we have in America today is completely unnecessary.

Submitted by phaster on January 18, 2016 - 5:33pm.

bearishgurl wrote:
Uhhhhh, phaster, may I ask what you DO for a living?

Inquiring minds would be interested to know.

bearishgurl wrote:
phaster wrote:
livinincali wrote:
The one benefit of defined benefit contribution plans, retention, isn't worth the risks, the frauds, the vote buying, and everything else it enables. That's the bottom line. The rewards (reduced training costs retention, etc.) don't outweigh the risks and therefore they should be scrapped..
Agree! And after doing some research, seems the best way forward is to follow the example set by the Thrift Saving Plan (a federal government 401K style program, that can't be corrupted/mismanaged like what happend at CalPERS or as what is happening with the SD pension program)

https://www.tsp.gov/investmentfunds/fund...

"The Thrift Savings Plan, used by millions of federal workers, is like a 401(k), except it's a lot cheaper. Last year it charged an average expense ratio of a mere 0.03%. That means just $3 in fees for $10,000 in savings, or $30 for a $100,000 portfolio.

John Turner, an economist and director of the Pension Policy Center and a former federal worker himself, said "Unless they're advanced investors, I think they should leave their funds in the TSP because it's simple and it's easy enough that most investors can do it and do it well"

http://money.cnn.com/2014/10/01/retireme...

W-a-a-a-ay back in the day, I was a payroll clerk employed by the Dept the Defense and can tell you with certainty that the TSP was the best plan in existence to supplement the DB plans for CSRS or FERS members (at that time). Any Federal employee who retires today (or in recent years) and elects to transfer their ENTIRE TSP investment to another vehicle upon retirement is a fool.

'Nuff said.

Because an investment retirement strategy in powerball DID NOT perform as expected, I can neither confirm nor deny what I do for a living

The powerball financial setback, has forced me to consider if I did hava a CV, what to state under Research/Skills given my qualifications, "a self-unmotivated full-time multi-slacker who specializes in beer·ology!"

Moving on, since you have some DOD experience/exposure, perhaps you have heard the expression win the battle but lose the war

I can only speculate but if DOD/treasury were to commission a threat assessment on public pensions, the plain speak summary would read TPTB are $hitbirds who have no grasp of the STRATEGIC picture and as a result TACTICS are driven by ad hoc economic/political self interest and existing OPERATIONS are a "corrupt" cluster-fuck!

As to how a hypothetical threat assessment study relates to the expression win the battle but lose the war, one would expect public pension advocates like politicians/lawyers are going to win a few delaying tactic battles along the way, but ultimately because of pension-math denialism, the war on improving the US economy will be lost and the cost paid by the "average" citizen will be high!

(analysis based on supporting data)

phaster wrote:

now back to the serious topic at hand since this is an economics message board where it clearly states at the bottom of the page... In God we trust. Everyone Else Bring Data!

BUT before looking at data, it might be useful to recall lessons taught in middle school, specifically the topic about "compound interest" and basic money management skills (which is key to surviving/thriving day to day in the modern day world)

https://www.youtube.com/watch?v=evDHk7g8SOM

if you have a mortgage, then perhaps you might have heard that you can pay off a loan much faster, by "annually" making an extra -- 13th -- mortgage payment,... what an extra mortgage payment does is directly reduces the principal balance on the loan by the amount of the payment (and the observed effect is exponentially decreasing the payback period)

https://www.youtube.com/watch?v=vF0sZEDFA5I

NOW lets (re)examine ACTUAL "historic" published documents/text (i.e. Data!)

City pensioners get '13th check' bonus

More than $6.1 million has been distributed to retired San Diego city employees in the form of a "13th check" — beyond their usual 12 monthly payments — making this year's holiday bonus the largest such payout in the history of the three-decade-old practice.

But it's become a source of conflict as the city's pension system faces a $2 billion shortfall in promised payments, which remains a taxpayer burden and has led to budget crises in the past at City Hall.

http://www.sandiegouniontribune.com/news...

Though SDCERS investments were earning well above the 8 percent rate of return estimated by the system actuaries, under normal conditions investments surpluses are required to make up for below-average returns in other years to achieve the average rate of return. Therefore, unless the actuaries' estimates are grossly incorrect, in the long run true "surplus earnings" are impossible. The use of surplus earnings for the purposes other than maintaining the pension system, such as to expand existing benefits should be viewed as a loan from the system THAT WILL REQUIRE REPAYMENT IN THE FUTURE.

The concept of surplus earnings is easily misunderstood, so sometimes these earnings are used inappropriately.

page 286

Handbook of Frauds, Scams, and Swindles: Failures of Ethics in Leadership edited by Serge Matulich, David M. Currie

https://books.google.com/books?id=VLxvUV...

anyone able to grasp the power/implications of "compound interest" then reading the published reports should be very disturbed at the mis-management/incompetence/corruption since the PRIMARY CAUSE as to why the "magnitude" of the SD public pension "unfunded" problem exists is due to a simple math concept that was suppose to be learned in middle school...

as-reported for the past three decades the "surplus earnings" (aka 13th payment) was diverted to Gubment-Pensioner(s) every holiday season INSTEAD OF being used for the original goal of trying to make sure the long term average return of the portfolio was achieved (about about 8% as per actuaries' design-estimates)

if anyone is able to think critically about "compound interest" then they will see that making an annual extra mortgage payment and making an extra payment to Gubment-Pensioner(s) every holiday are two side of the same coin; one side allows a mortgage debt to be paid "down" much sooner, the other side makes the debt to pile "up" exponentially over decades!

(bearishgurl) since you have taken the blue pill - its apparent you believe whatever you want to believe!

for all other(s) who dared take the red pill, the BOTTOM LINE seems to be as long as the "surplus earnings" (aka 13th payment) is siphoned off every holiday season for Gubment-Pensioner(s) INSTEAD OF being used to maintain the pension system designed target return rate, the SD pension system as currently structured/operated AND using nothing more than "honest" common sense and middle school math tells us, that the un-funded DEBT issue will basically ALWAYS grow!

http://www.doughroller.net/investing/pow...

phaster wrote:

from what I have seen, the root cause of the problem is corruption (and if somehow that was fixed then lots of other problems get resolved)

http://www.breitbart.com/big-government/...

a few months ago a neighbor (who own a few properties in the neighborhood) and he shared that some in the neighborhood were trying to build support for local park

when I looked at the project calculated it was a hundred million dollar pork barrel project

basically like a corrupt corp that under-bids a project then charges cost over runs, seems estimated costs were much less than what seems to me as a common sense cost approach (but what do I know) FYI the project was being supported by RE interests and some local politicians (go figure)

http://1drv.ms/21In5ap

this is just another example of local corruption/self interest destroying the economy from w/in

ironically this past week there was a news video that was about a program trying to help homeless people in the area by requiring them to have one-on-one financial counseling (which seems to be a good start)

http://america.aljazeera.com/watch/shows...

I have to admit I didn't really care or understand the nature of public pensions (till a few years ago), but as I see things it requires politicians to admit the system is corrupt and since they have an economic/political self-interest in hiding the truth there is very little hope to avoid a crisis of biblical proportion.

nothing will be fixed for a long time (if at all) for the simple reason in order to fix a problem, first one must admit that there is a problem and have the mental ability to understand the complex nature of the system.

one only has to read the newspaper to see that local politicians share economic traits much in common with corrupt companies/official like in the ENRON corp

http://www.voiceofsandiego.org/topics/po...

http://www.sandiegouniontribune.com/news...

recall officials at Enron ordered destruction of to evidence

http://abcnews.go.com/WNT/story?id=130518

its not too hard to find that same thing was ordered here in town

http://www.kpbs.org/news/2014/feb/28/san...

given all this, have to wonder if the problem I inherited was somehow related (i.e. another symptom of government corruption)

engineers_report_2675_bway.pdf
https://onedrive.live.com/redir?resid=B4...

which it points to a much larger problem no-one wants to admit exists

tax evasion - motive and means.pdf
https://onedrive.live.com/redir?resid=b4...

http://www.kpbs.org/news/2012/jul/03/cit...

actually the guy that helped me understand my sewer line issue told me stuff has been going on for years and over sights like a ex-council member who got a permit to build a garage (right on the property line, contrary to stated set-back rules which are clearly stated) in the neighborhood just after he was termed out and ran for higher office (years ago) is no different that what happened to me...

www.TinyURL.com/EnronByTheSea

government corruption is just like a fractal (because the pattern reappears over and over again, at different levels of government)

my own look at the data shows the system is corrupt and there is no economic incentive to admit there is anything wrong (which IMHO is going to play right into the hands of foreign powers that are playing the long "economic" warfare game against the USA)

http://www.cnbc.com/2015/11/30/china-cou...

bottom line I can't imagine foreign powers ignoring easy to exploit useful-idiots (as well as corrupt politician) who want to keep their unsustainable public pension (in play) as a diversionary tactic against the USA in the realm of geo-politics

Submitted by phaster on February 4, 2016 - 7:00am.

Parabolica wrote:
The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. They are consigned to investment company sharks by their ignorance and the limited choices available to them in their company 401(k) choices.

Harvey, how does the average person taking your prescription save for their own retirement? Do they know about index funds? Do they get idea of changing the equity/bond ratio as they approach retirement? If they look for advisers can they avoid the sharks? I say that they cannot begin to match the returns and stability provided by professional managers of defined benefit programs. Do you see it differently?

RETURNS AND STABILITY provided by professional managers? ROTFLMAO!! Oh you're serious...

ever consider that the local city/county $hit for brains pension system as well as CalPERS are run by so called "professionals" and look where we are today!!

As it stands, the "tax payer" is the financial back-stop for a corrupt/mis-managed portfolio strategy (that only guarantees payouts BUT has no control on investment vehicle returns)

FWIW here is a link to an article about an investment scheme that has the very same characteristics you are seeking... because of the STABILITY of double-digit RETURNS and the reports of serious wealth creation...

http://www.forbes.com/2008/12/12/madoff-...

Nuff said?

humans by nature are impulsive and irrational, so for the big bets that we as a society can't afford to lose, its time to scrap the complex/corrupt "professional" portfolio management style and switch to a PASSIVE investment model

https://www.washingtonpost.com/news/get-...

http://www.barrons.com/articles/solving-...

phaster wrote:

October 2, 2014 - 8:18pm.

CA renter wrote:

You're also clearly ignorant about the differences between DB and DC pensions. DC plans have higher administrative costs and lower returns; DC plans have access to fewer investment options; DC plans don't pool longevity risk; DC plans have lower contribution limits than DB plans (for employer and employee); and DB plans can remain in higher-yielding and more diversified investments and can better manage the ups and downs of the market over time because they are continuously funded by the contributions of current employees and their employers, and benefits are staggered well into the future (pooled investment risks over time and number of people).

News reports about CalPERS and the SD pension board, leads me to believe idiots who over estimate their own management abilities AND have no basic understanding of math or the investing paradox, are at the helm.

Given your logic since CalPERS and SD have "professional" managers, elected board(s) to provide oversight and access to diversified investments, then why haven't they beat the market benchmarks (i.e. the index of the DJ30 or S&P500)?

http://www.marketwatch.com/investing/ind...

http://www.marketwatch.com/investing/ind...

IMHO its because of the "investing paradox."

Simply stated a disciplined small/individual investor can beat market averages over long periods of time, because their trades fly under the radar and are "un-noticed" by the market.

However when the portfolio is in the BILLIONS (as is the case w/ SD), or the HUNDREDS OF BILLIONS (as is the case w/ CalPERS), any trade they make I'd argue is the market (so a different investment style is needed).

phaster wrote:

livinincali wrote:

The one benefit of defined benefit contribution plans, retention, isn't worth the risks, the frauds, the vote buying, and everything else it enables. That's the bottom line. The rewards (reduced training costs retention, etc.) don't outweigh the risks and therefore they should be scrapped..

Agree! And after doing some research, seems the best way forward is to follow the example set by the Thrift Saving Plan (a federal government 401K style program, that can't be corrupted/mismanaged like what happend at CalPERS or as what is happening with the SD pension program)

https://www.tsp.gov/investmentfunds/fund...

The Thrift Savings Plan, used by millions of federal workers, is like a 401(k), except it's a lot cheaper. Last year it charged an average expense ratio of a mere 0.03%. That means just $3 in fees for $10,000 in savings, or $30 for a $100,000 portfolio.

John Turner, an economist and director of the Pension Policy Center and a former federal worker himself, said "Unless they're advanced investors, I think they should leave their funds in the TSP because it's simple and it's easy enough that most investors can do it and do it well"

http://money.cnn.com/2014/10/01/retireme...

no matter where one stands one the political spectrum, I'm sure all would agree we as a nation are in general mostly consumers NOT savers/investors

(if I were king) to encourage long term savings/investment and try to eliminate short term market volatility, I'd keep the "low" long term capital gains tax on equities in place BUT I'd set the short term capital gains tax "much higher" (at least 60%)

high taxes on short term trades would discourage high-frequency computer algorithm trades as well as discourage the average investor who feels the whim to sell/buy into the latest investment fad when they see the talking heads on CNBC/Bloomberg/etc.

there is also too much corruption in the system which is vary bias against the little guy trying to step up on the bottom rungs of the economic ladder, so IMHO its important to economically incentive long term savings/inventing in passive accounts

I'd like to try a progressive-inversive matching program, which means I'd borrow the idea of a euro basic income program, BUT the twist would be that it would only be used to save/invest for an individuals retirement (not to be used for short term consumption which has adverse affects on the global environment)

http://www.latimes.com/world/europe/la-f...

to seed an individuals portfolio all citizens below the age of 18 (but above age 10) would be given a token amount for a their own TSP like retirement account that could not be taken out till they turned say 65 (this way money could be grown by compounding)

I'd think with an infusion of "stable" stockholders US companies would not have to worry "as much" to cook the quarterly stock returns to appeal to talking head "analyst" ALSO figure by staring young this would cement the concept of compound math in student (while still in middle school)

don't think such a program would cost any real money because it would be "credit" that could not be spent (hence no "inflation" or increased velocity of money)

this idea might sound complex/radical, but actually pretty sure in the long run it would simplify and clearly signal to everyone that its important to save for the long term

so wrt "working" at some fast food chain or at some other service job

-say a person earns 10k annually and manages to save 10% for a TSP like retirement account (then I'd want to have the government double the match, in other words put in $2000)

-say a person earns 20k annually and manages to save 10% for a TSP like reti)rement account (then I'd want to have the government the match 10%, in other words put in $2000)

note the amount stays the same, but as a percentage it goes down (and of course there would have to be a cap/cut-off)

-say a person earns more than 60k annually and manages to save 10% for a TSP like retirement account (then I'd want to have the government give a tax credit like in an IRA deduction, which is an economic signal to higher wage earners to save/shelter money for retirement)

as it stands today the system IMHO is very inefficient with various overlapping administration and means-testing costs, and there is no clear signal for individuals to save/invest for retirement

so as envisioned a forced basic saving program should eliminate inefficient administration costs, eliminating causes of short term market volatility, etc...

yeah I know this does not directly address the big wealth gap between people working at service jobs vs CEO/investment-bankers but its taken 30+ years for the condition to come about so there is NO easy/painless way out of this fucked up economic mess...

Submitted by phaster on February 21, 2016 - 6:54pm.

FlyerInHi wrote:
BG, it's not envy. The reason for complaining is that services are cut while salaries and pensions are not; all the while budgets are growing.

There are better, more efficient ways of rendering services to citizens, which which what reforms is all about.

Déjà vu!!!

I don't know what I was thinking not believing what politicians/lawyers said in a press release about [FILL IN THE BLANK], because those professions have always been known for being pillars of integrity and deep intellect

TIMESOFSANDIEGO.COM wrote:

Financial Outlook Shows San Diego's Revenue Will Grow

Revenues to the city of San Diego are projected to "modestly improve" over the next five fiscal years, while expenses will continue to rise, according to a financial outlook to be delivered Thursday to the City Council's Budget Committee.

The five-year outlook, released annually in November by the mayor's financial staff, projects steadily increasing general fund surpluses through Fiscal Year 2021.

The anticipated surpluses begin at $200,000 for the next fiscal year, and grow in subsequent years to $7.9 million, $25.1 million, $46.4 million, and $73.7 million.

THE PROJECTIONS DON'T INCLUDE FACTORS THAT OCCASIONALLY POP UP, like increases in contributions to the employee pension system.

http://timesofsandiego.com/politics/2015/11/18/financial-outlook-shows-san-diegos-revenue-will-grow/

any one care to guess how much longer the "can" can be kicked down the road...

PUBLIC "Pension liabilities must be included on the balance sheets of the agencies responsible for funding their employees' pensions. Until now liabilities have been buried in arcane footnotes that few read and even fewer understood"

http://articles.latimes.com/2014/apr/09/...

Submitted by CA renter on February 23, 2016 - 7:11am.

"Standard And Poor's Gives San Diego County Its Highest Rating
San Diego County has earned the highest possible rating from all three of the top credit agencies—Fitch, Moody’s, and Standard and Poor’s."

http://patch.com/california/encinitas/s/...

Submitted by CA renter on February 23, 2016 - 7:22am.

Parabolica wrote:
The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. They are consigned to investment company sharks by their ignorance and the limited choices available to them in their company 401(k) choices.

Harvey, how does the average person taking your prescription save for their own retirement? Do they know about index funds? Do they get idea of changing the equity/bond ratio as they approach retirement? If they look for advisers can they avoid the sharks? I say that they cannot begin to match the returns and stability provided by professional managers of defined benefit programs. Do you see it differently?

The corporations were allowed to strip workers of defined benefit plans, moving liabilities off their books, and giving employees the 'freedom' to chart their own financial course. It is like handing someone a parachute and kicking them out of a plane for the first time so that they may have the 'freedom' of learning how to reach the ground without perishing. Those stripped of defined benefit plans are angry that their employees, government workers, have not been been rendered naked as well. Understandable, but not pretty.

You've nailed it, Parabolica.

Apparently, Pri/Harvey hasn't seen the stats on savings, either.

"There hasn't been a significant increase in wages, people have student loans and other debt, and many are continuing to struggle financially," said Charles Jeszeck, the GAO's director of education, workforce and income security, which analyzed the Federal Reserve's 2013 Survey of Consumer Finances to come up with its estimates. "We aren't surprised that people have not saved a lot for retirement."

"...Even among those who do have retirement savings, their nest eggs are small. The agency found the median amount of those savings is about $104,000 for households with members between 55 and 64 years old and $148,000 for households with members 65 to 74 years old. That's equivalent to an inflation-protected annuity of $310 and $649 per month, respectively, according to the GAO.

"I don't care what anyone says. That's not enough income for retirement," said Anthony Webb, senior research economist at the Center for Retirement Research at Boston College, who reviewed the GAO report."http://www.cnbc.com/2015/06/03/most-olde...

.................

There isn't a "lifestyle adjustment" of any kind that will ever make this DC system solvent. The government WILL be bailing people out, one way or another. We might as well do it in a way that is transparent, honest, and humane. That means that we will need to strengthen and expand SSI. Just lift the contribution and benefit base (cap on income subject to SSI tax), and cap the benefits at around $100K or so and adjust this cap by CPI every year.

If it still needs more shoring up, increase the tax rate, or subsidize it with other federal money, until it's sustainable.

Submitted by XBoxBoy on February 23, 2016 - 8:31am.

Parabolica wrote:
The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement.

I have no idea who is right in this argument or what is fair, but I'd like to point out another issue that worries me about defined benefit vs 401k. That is that 401ks are generally optional, while defined benefit are not. I have well educated, professional friends working in high tech careers, in their late 50s who have never put any money into a 401 or any retirement plan (other than social security). Compare that to govt. workers or teachers who have no choice but to contribute. Not only are people not savvy enough to manage the financial waters, they aren't savvy enough to figure out they need to save to have a retirement fund. Not sure how to fix that, but it seems to me to be a big issue lurking out there.

Submitted by harvey on February 23, 2016 - 12:30pm.

XBoxBoy wrote:
Not sure how to fix that, but it seems to me to be a big issue lurking out there.

How to fix what?

My belief is that the only problem the government needs to fix is the risk of the elderly and disabled becoming destitute. Government has a responsibility to address humanitarian risks that could impact large populations.

And the federal government fixed that problem decades ago with Social Security and Medicare.

It's not a responsibility of government to ensure a comfortable retirement for everyone.

Submitted by XBoxBoy on February 23, 2016 - 3:55pm.

harvey wrote:
XBoxBoy wrote:
Not sure how to fix that, but it seems to me to be a big issue lurking out there.

How to fix what?

My belief is that the only problem the government needs to fix is the risk of the elderly and disabled becoming destitute. Government has a responsibility to address humanitarian risks that could impact large populations.

And the federal government fixed that problem decades ago with Social Security and Medicare.

It's not a responsibility of government to ensure a comfortable retirement for everyone.

Whoa wait a minute!!! Where did I say I thought the govt. should do any of the fixin'?

My comment was to point out that from where I sit, there's going to be a lot of people who are going to be really surprised that they aren't going to be able to work until they drop and that they are going to find their standard of living will drop significantly when they find themselves retired.

That seems to be the fault of those people, and to be a symptom of moving from defined benefit plans to 401ks. To me the problem mostly stems from people not being savvy enough or responsible enough to plan for their retirement. I don't know how to fix that lack of knowledge and responsibility. But mostly definitely don't take that to imply the govt. should fix it.

Submitted by harvey on February 23, 2016 - 4:36pm.

XBoxBoy wrote:
Whoa wait a minute!!! Where did I say I thought the govt. should do any of the fixin'?

Fair enough. In fact we are probably mostly in agreement. I'm even saying that there really is not a problem that anybody needs to fix.

This thread has been mostly about government policy regarding pensions. Some here have argued that government should fix the perceived problem by simply handing out defined-benefit retirements to everyone.

The doom and gloom stats about retirement all assume that people are entitled to a comfortable retirement on par with their previous standard of living. That's easily achieved by any individual with financial discipline. The fact that so many don't have that discipline is nobody's problem but their own.

Submitted by joec on February 23, 2016 - 7:06pm.

This retirement problem I think will be a major issue in the next few decades. I agree that anyone not saving themselves should get very little help, but if they offer nothing, what you will just have is people purposely committing crime to get locked up. That costs a TON more money than probably basic living expenses which should have been forced taken from people when they were younger.

I read this was also happening in Japan (trying to get jailed) since at least you are fed and have a roof over your head...and the medicines...(and the added loving at night)...

All that said, I think they probably should setup something very minimally (to prevent people living/dieing on the streets), but not doing anything and saying "tough" would just lead to more crime and people locked up which will cost all of us more money.

I think putting someone in jail costs over 50k or much more a year...Pretty wasteful.

http://www.thecrimereport.org/news/insid...

Maybe they should setup old dorms or something where they can live/work and do simply tasks for their living expenses...and healthcare.

Submitted by livinincali on February 24, 2016 - 10:28am.

XBoxBoy wrote:

That seems to be the fault of those people, and to be a symptom of moving from defined benefit plans to 401ks. To me the problem mostly stems from people not being savvy enough or responsible enough to plan for their retirement. I don't know how to fix that lack of knowledge and responsibility. But mostly definitely don't take that to imply the govt. should fix it.

It's not a problem with defined benefit plans. Those have been around for such a short period of time in human history, nobody knows if they were going to work in the long run. Evidence is starting to pile up that they were never going to work in the first place. A few early retirees in those plans made out but it's becoming increasingly likely that those nearing retirement in those plans will have them cut in some form once they are retired.

The real problem is that comfortable independent living retirement might not be workable. Our expectations of retirement are a relatively new phenomenon that's never really been tested for multiple generations. For those in the top 20% that might be workable but it might not be workable for the masses. Multi-generational living or group living is probably going to end up being the solution. The old won't die destitute but the standard of living is probably going to fall way short of expectations.

Submitted by bearishgurl on February 24, 2016 - 12:09pm.

People who are retired don't need to live in the "manner they were accustomed to" in the height of their careers. Their expenses are much less by then and almost everyone I know who is 65 or older has a paid off house. Example: most "retirees" around me use one tank of gas per month (max), like I do (unless I'm on a road trip). I don't understand what all the discussion akin to "boomers are going to be living on the street," is about. Nothing could be further from the truth. Retirees are not big "consumers," especially in SD County. Most of them don't travel much because they don't feel they need to and never even traveled much when they were working. Their families are here and this is the best place in the country to live.

None of them are going anywhere except to relative's homes to visit, the grocery store, church, the Lion's club, their volunteer gig at the library/hospital and out to putter in their gardens.

Financially, this group can outlast all of us and will likely die in their homes, at which time their "heirs" will swoop in and clean the place out and rent it or occupy it. Very few of these homes will ever hit the market.

All this "hoopla" about boomers (esp CA boomers who have greatly benefited from Prop 13 and its progeny) becoming destitute and dependent on public aid is a crock of sh!t. It's never going to happen.

Submitted by FlyerInHi on February 24, 2016 - 12:10pm.

Cap health care to 10% of the economy. Can easily be done through policy.

We should also retire in cheap locales -- Pensacola, Panama, Puerto Rico, Costa Rica, etc... Good for those local economies and good for retirees. Change Medicare to cover medical expenses overseas.

I plan to buy a condo in Thailand (when the next financial crisis hits). On $2,000 per month (excluding housing) I can live very well. Just travel back and forth. Social security + income on 1 rental should cover it. I don't even need to touch my principal.

Submitted by bearishgurl on February 24, 2016 - 12:20pm.

Gen X and Y'ers would do well to focus on their own financial situations (present and future) and not worry so much about the "boomer" generation becoming a "liability" to them. All their angst over us poor boomers is for naught.

Submitted by bearishgurl on February 24, 2016 - 4:28pm.

FlyerInHi wrote:
Cap health care to 10% of the economy. Can easily be done through policy.

We should also retire in cheap locales -- Pensacola, Panama, Puerto Rico, Costa Rica, etc... Good for those local economies and good for retirees. Change Medicare to cover medical expenses overseas.

I plan to buy a condo in Thailand (when the next financial crisis hits). On $2,000 per month (excluding housing) I can live very well. Just travel back and forth. Social security + income on 1 rental should cover it. I don't even need to touch my principal.

More power to ya, FIH, but I don't want to leave the country. If Trump becomes president, he states he plans on making all healthplans nationwide and portable (eliminating the state barriers among insurance carriers). That's a great start but I think I'm going to contact my legislator about writing up a bill to introduce to the next Congress and administration to bring back HDHPs when the Repub Congress is in the middle of figuring out how to gut the ACA without too much disruption. For example, I didn't sign up for "maternity benefits" or "autism coverage" for my child when I applied for my HDHP in 2004 and I don't want to continue to pay for these services now. There are other services on my "ACA-compliant" healthplan that I don't need and I don't need as comprehensive of coverage as I have. I can deal with a $5K deductible and $12K OOP maximum and don't need a "paternal" gubment to decide for me, otherwise. I want an affordable plan (without needing a "subsidy" to help pay for it where the gubment at all levels is constantly in my personal business, twice conducting unauthorized effing with my income and cancellation my plan), a good CHOICE of providers and NATIONWIDE coverage and am not alone. There are MANY people like myself who are on the road several weeks per year where anything can happen in the blink of an eye.

If I end up getting "roped into" lobbying in Sac or the like for healthplan "reform" in the wake of the ACA being piecemeal gutted, then so be it. I know how and there is a hotel room with my name on it waiting for me up there :=0

I feel very passionate about bringing back into CA all six health insurance carriers that defected at the end of 2013, in the wake of Obamacare :=)

I was registered as a dem for 25 years but I want to know WTH they were thinking when they passed the ACA. It is the most ridiculous, costly, poorly-thought-out piece of legislation that I have seen in my lifetime. From "ground zero," its mechanics and moving parts are completely unworkable and are causing state gubments to actually run amok going "rogue" in their efforts to decide themselves who is and who isn't eligible for a subsidy and how much. That decision was supposed to be the purview of the IRS but for the last two years, the hopelessly incompetent Covered CA has been taking it upon themselves to decide. It's a comedy of errors which unfortunately has far-reaching ramifications, including effing up thousands of people's lives. It's a shining example of the "Peter Principle" in all its glory.

Everything should have been left alone and the people who had letters from carriers turning them down for coverage due to pre-existing conditions should have been able to use those letters to receive affordable coverage from the state insurance pool which EVERY carrier doing biz in the state is forced to join. I wouldn't have minded a little added to my premium to get these people coverage. The gubment didn't have to eff with the many thousands of OTHER existing individual policyholders. We were fine.

[end rant]

Submitted by phaster on February 29, 2016 - 7:39am.

CA renter wrote:
"Standard And Poor's Gives San Diego County Its Highest Rating
San Diego County has earned the highest possible rating from all three of the top credit agencies—Fitch, Moody’s, and Standard and Poor’s."

http://patch.com/california/encinitas/s/...

ever consider a "AAA bond rating" is just a variation on a theme of information requested for a mega-super-sized-jumbo STATED INCOME LOAN (application)?

you know like stuff from the news a few years ago, where there was wide spread reports the various mortgage lenders did not verify the borrower's income!

Déjà vu!!!!! because I seem to recall that all the stated income loans were then packaged in a CDO and like wise given the "HIGHEST RATING" from all three of the top credit agencies (Fitch, Moody's, and Standard and Poor's).

http://www.bloomberg.com/news/articles/2...

....just pondering out loud the various "incentives"

http://freakonomics.com

so is the news-release in a small "public" community rag, for some kind of loan application propaganda - in other words is it to assure/calm bond investors (i.e. an economic PR job)? perhaps since there was a quoted a political figure in the news article perhaps is it to assure/calm "local" taxpayers/voters (i.e. a political PR job)??

looking ahead, given all the parallels really have to wonder are SD muni-bonds destined to be the subject of the big sort sequel??? anyone else like the award winning writing style in the movie where mortgage bonds were described as dog$hit AND CDOs were likened to dog$hit wrapped in cat$hit

(analysis based on supporting data)

NPR wrote:

After the stock market crash of 1929, the agencies began to also rate bond investments for banks — at the request of the U.S. government. But things began to change in the 1960s and 1970s. Instead of charging investors for their ratings information, the agencies began to charge the bond issuers themselves for the ratings.

"People were quite critical of this and said it could create a conflict of interest," Partnoy says. "You can imagine what the difference between ratings of restaurants and movies might be if instead of the Michelin Guide or the Zagat guide, if the restaurants or movie companies themselves were paying the raters to be rated, it's an obvious conflict of interest. And now it's very commonplace that companies and GOVERNMENTS — anyone who wants to borrow money — THEY ARE THE ONES WHO ARE PAYING FOR THE RATING."

http://www.npr.org/2011/08/17/139675717/...

CA renter wrote:

December 14, 2014 - 5:09pm

Don't be a a useful idiot. If you're not being paid, you should definitely demand payment from [Strike]the Privatization Movement[/Strike] [mismanaged entities like SDCERS and/or all three of the top credit agencies] for your services. They expect to reap great rewards from the work of people like yourself; make sure to get your piece of the pie.

http://en.wikipedia.org/wiki/Useful_idiot

CA renter wrote:

January 10, 2016 - 3:21am

There are far too many people walking around who think that they know what they're talking about when they really have no clue.

translate.google.com: (bond rating = pay to play bull$hit)
translate.google.com: (CA renter = useless dumb$hit)

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