OT: Straight From The Horses Mouth

[no_such_reality]

[quote=CA renter]Social Security is a defined benefit retirement plan/insurance, and while employers contribute to it (which would likely always be the case), it is a public plan. I am a staunch supporter of DB pension plans…for everyone. Always was, and always will be. 🙂

I should amend my comment by saying that the employer would contribute to the plan, but that the plan is fully portable, and not on the employers’ books.[/quote]

SSI is a good model of a DB. 12.4% contribution rate that provides a payout of 28% your maximum earnings after 35 years of services and minimum retirement age of 66 to get the 28%. Life expectancy at 66 for a male is 16 years. If you retire at 62, that payout goes to 21% of the last year max income (and is calculated off all 35 years) If you didn’t earn max for 35 years, you get even less.

Let’s contrast with California Safety worker plans, paying 90% payout at 30 years of service for 1 year of maximum contribution as early as age 55.

a little different aren’t they?

And yet, SSI will have problems if they don’t increase the contribution rates or levels.

[CA renter]

[quote=no_such_reality][quote=CA renter]Social Security is a defined benefit retirement plan/insurance, and while employers contribute to it (which would likely always be the case), it is a public plan. I am a staunch supporter of DB pension plans…for everyone. Always was, and always will be. 🙂

I should amend my comment by saying that the employer would contribute to the plan, but that the plan is fully portable, and not on the employers’ books.[/quote]

SSI is a good model of a DB. 12.4% contribution rate that provides a payout of 28% your maximum earnings after 35 years of services and minimum retirement age of 66 to get the 28%. Life expectancy at 66 for a male is 16 years. If you retire at 62, that payout goes to 21% of the last year max income (and is calculated off all 35 years) If you didn’t earn max for 35 years, you get even less.

Let’s contrast with California Safety worker plans, paying 90% payout at 30 years of service for 1 year of maximum contribution as early as age 55.

a little different aren’t they?

And yet, SSI will have problems if they don’t increase the contribution rates or levels.[/quote]

No disagreement on the benefit levels for many public sector pensions. They should be rolled back to pre-2000 levels for ALL public sector employees and current retirees. I’ve never wavered on that point.

The public employees and employers pay more into their DB system than SS employers/employees do. There is also a difference because their DB pensions are a form of deferred compensation, whereas SS is an insurance program designed to protect the elderly from extreme poverty.

[CA renter]

[quote=livinincali][quote=CA renter]Social Security is a defined benefit retirement plan/insurance, and while employers contribute to it (which would likely always be the case), it is a public plan. I am a staunch supporter of DB pension plans…for everyone. Always was, and always will be. 🙂

I should amend my comment by saying that the employer would contribute to the plan, but that the plan is fully portable, and not on the employers’ books.[/quote]

You’d have to radically redesign most DB plans because it would be incredible difficult use a percentage of highest or average of highest salary and transfer the benefit. If you had a job that was averaging around $50K and the actuaries were planing for a $35K DB, and then went to a $100K which would correspond to a $70K DB there’s not a way for the DB to pay. The money to pay you $70K annually wasn’t planned for and doesn’t exist.

I favor defined contribution that can be switched to a defined benefit using something like an annuity. That way you don’t have any of the incentives for various abuses by employees and employers. Want the safety of a DB put your total defined contributions and investment earnings into a risk pool that guarantees a fixed payment.

The reason nobody getting a defined benefit pension likes that idea is because they know that they can get more by gaming their defined benefit than an annuity would pay from their defined contributions. The problem is that somebody has to make that difference up and the reality is that nobody will so defined benefit pensioners are going to get screwed somehow. Most likely it will come through bankruptcy imposed haircuts.[/quote]

I think that DB pension benefits should be based on the average annual compensation over a person’s entire working career, multiplied by an inflation factor that is representative of real life inflation (not CPI).

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