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June 18, 2012 at 7:38 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #746064
SK in CV
ParticipantBuying and selling real estate is different in every state. Particularly with residential real estate, agents are used to dealing with inexperienced buyers and sellers. If you’ve been through the process in CA before, and are an experienced and concientious buyer, you should have no problem navigating the process without an agent representing you. Agents get paid for the service they provide, sometimes it’s their experience, sometimes it’s just hand holding that’s required. If you don’t think you need that service, negotiate that savings accordingly and do it yourself.
June 15, 2012 at 8:15 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745800SK in CV
Participant[quote=harvey]
The use of the term “funding” is unclear to me here. Are we talking about making the required contributions? (I thought you were.)[/quote]
A little lesson on the difference between defined benefit plans and defined contribution plans…
DC plans are pretty simple. A specific dollar amount based on compensation is contributed to the plan each year. Each employee has an account balance. Risks of investment loss flow to participants.
Defined benefit plans (also sometimes referred to “target benefit” plans) provide a stream of annual pension payments to retirees at a specific retirement age. Funding is based on actuarial and other assumptions required to reach that target benefit.
Example: 30 year old employee earning $50K a year, with a target annual benefit of 2% of comp at 65 years of age. Actuaries compute how much is needed today in order to fund a $1,000 a year, 35 years from now, over the employees expected life. Assumptions have to be made about life expectancy, and pre and post retirement rate of return. Sounds a bit complicated, but it’s not, and annuity companies do this all the time, they’re very good at it. This amount would be the annual “normal cost”.
Where it gets a little more complicated is where the target benefit is based on final year of pay, and has COL adjustments, and vesting schedules. Employees do not have accounts, the fund, in total, needs to be sufficient to fund retirement benefits for all employees.
Each year, the total required to fund all current employees is computed. The difference between funds in the plan and the required funds is the pension liability for the year. (I won’t get into the details here, but some of that pension liability flows to the P&L, and some may not flow to the current P&L, as in cases of funding based on changes to plan design. Those changes may result in required funding for past service costs, which normally get amortized.)
If there are no changes to the plan, and the plan investment scheme meets the expected rate of return, generally the funding for the year will be the normal cost. That’s the amount the employer is required to contribute for the year. It is not a precise number, but actuaries really do know what they’re doing. It will be pretty damn close.
If investment results vary from the expected rate of return, the current required contribution will vary accordingly. During the roughly 15 years from 1990 forward, investment returns were generally significantly higher than expected, resulting in required contributions being significantly lower than normal costs. Employers (cities, counties, police departments, etc, in addition to private companies) had lower, sometimes significantly lower, current costs as a result of these higher returns. In some cases, some employers had no required contributions.
In other words, the annual costs for defined benefit plans were as low as zero. That’s significant savings versus defined contribution plans. Employers did NOTHING wrong by contributing zero. They didn’t skip required contributions. There were NO required contributions. The plans were fully funded. Plan sponsors saved millions of dollars as a result of these higher investment returns. Employees got nothing extra.
Then the shit hit the fan a few years ago, when investment returns were sharply negative. The required amount to fund all future payments was computed just as it had been in the past, but the fund balances at year end were signficantly lower than the required funding. Employers (plan sponsors) were required to make up that difference. That’s what caused the crisis.
There are all kinds of peripheral stuff that has also happened. For instances, plan sponsors at times negotiated retirement plan benefit increases, in leiu of current comp increases (See SDPD), which was easy since plans were already over-funded, those benefit increases were almost free. Seemed like a good idea at the time. But when investment losses hit the funds, those previously free or low cost increases, exacerbated the underfunding problems.
I hopefully didn’t skip anything terribly important. I think I hit most of the basics on how the plans work. Please excuse typos, if any, it’s a bitch typing all this crap on my phone.
June 14, 2012 at 4:40 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745751SK in CV
Participant[quote=harvey]Nice vino!
The 17% number was mine….but it’s an irrelevant detail…derived from a misinterpretation of an aside comment that was not precisely worded and then incorrectly attributed…why are we dwelling on it?
The fact that GM has significant legacy healthcare costs is undisputed.
http://lmgtfy.com/?q=gm+legacy+costs
Anyway…
SK is right about the framing:
[quote]Yet a decade ago, most of the public employee retirement plans in CA were over funded. There was more than enough in the plans to cover all future obligations. The assertion isn’t necessarily wrong that we’re currently paying for employees that retired 20 years ago, but more accurately, we’re paying for recent investment losses, and insufficient funding over the last 5 years.[/quote]
And after umpteen pages he finally joins the scrimmage! Welcome to the game, dude!
So why weren’t the pensions funded – who agreed to it? Did the unions know that the pensions weren’t being funded? (I can’t believe that they don’t watch this stuff – or maybe they don’t care because they don’t have to?) And who should bear the cost of these “mistakes?”
It happens that the underfunding of pensions during the boom coincided with significant public-sector raises. That’s how San Jose cops ended up making so much. Did they effectively divert the pension contributions to cover the raises?
(I know people who stopped contributing to their 401Ks during the boom also. “My retirement fund is doing great, I can cut my 401K contributions and spend the money now!”)
So who pays for the shortfall? More importantly, why do we have a system where there even can be a shortfall? Why is it so hard to even calculate the amount of shortfall?
Why is the government even in the investment management business? An investment plan where only 15% are allowed to participate?
Why is it so complicated?
All of this mess goes away if you simply pay people (and fund their individual 401Ks) for the period that services were provided.[/quote]
They were not underfunded during the boom. From around 1990 through the middle of the last decade, most calpers plans were either very close to fully funded, fully funded, or over funded. It wasn’t until the market crashed did they become underfunded due to fund losses, and having nothing to do with insufficient funding from employees or sponsors.
This is it for me tonight, I’m off to my son’s graduation in nor cal.
June 14, 2012 at 2:02 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745730SK in CV
Participant[quote=bearishgurl]
I’m beginning to think sdr is starting his “imbibement hour” too early in the business day :=0[/quote]Hi BG 🙂 didn’t think anyone else was still watching this train wreck.
I’d rather give sdr the benefit of the doubt. I screwed up and misattributed something. I’m not even sure I addressed the point he was making. 11-12 pages in….these things can get pretty confusing.
June 14, 2012 at 1:49 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745728SK in CV
Participant[quote=bearishgurl][quote=harvey]…Do a google on GM and “legacy costs” and you’ll see lots of info describing just how big the issue is. Every GM car still carries the cost (mostly healthcare) of employees who retired decades ago. Some estimates are as high as $2,000 per car! At one time a huge portion of these liabilities didn’t even show on the balance sheet…[/quote]
Uhhh, pri_dk, GM employees who retired “decades ago” are likely now on Medicare. How is it that their (exorbitant?) healthcare costs are wrapped into the price of a new GM vehicle today?
How many “decades” is “decades ago?” And …. more to the point, what was the average retirement age for a GM autoworker??[/quote]
You nit-picker 🙂
Some of the problems in this discussion is framing. The assertion was made that we’re currently paying for public employees that retired years ago. Yet a decade ago, most of the public employee retirement plans in CA were over funded. There was more than enough in the plans to cover all future obligations. The assertion isn’t necessarily wrong that we’re currently paying for employees that retired 20 years ago, but more accurately, we’re paying for recent investment losses, and insufficient funding over the last 5 years.
June 14, 2012 at 1:45 PM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745727SK in CV
Participant[quote=sdrealtor]
SK
I’m beginning to think you could be a bit bi-polar. Re-read the quoted passage and you will see the 17% was your figure and no one elses. You also attributed my comment that “many public companies are merely shells” (they are and that is indisputable) to Harvey. Time to up the meds.[/quote]The 17% was originally harvey’s number. I said 20-30%, he called me out on it. I provided a link to an article that I think said 30% (as did another poster). I used the 17% because it’s lower, no need to reargue that point.
June 14, 2012 at 9:23 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745711SK in CV
Participant[quote=harvey][quote=SK in CV]No, nothing obvious about it. There are still many private defined benefit plans. Not as many as there were 25 years ago, but they still exist. 25 years ago they were not just big company plans. There are fewer now. There will probably be fewer in the future. I don’t think they’re dead. There is no evidence that they’re dead. They remain a valuable tool in attracting and keeping good employees. [/quote]
Did you just take a position? There’s hope for you yet!
Hey everybody, SK stepped onto the field. Maybe he can play after all!
So DB pans are fewer and fewer but they’re not “dead?” Kinda like those three-legged and hairless dogs, eh? There’s may be a few exceptions, but do they matter?
Pull up my article showing the historical trend (or use your data if you prefer.) The line is steadily downward, and is pointing straight at zero.
My point is that the trend is not going to reverse. The fact that a few DB plans may linger on is really not important. The number is closing on zero quickly, and there is nothing that is going to reverse that trend.
Which means the fundamental difference between the private-sector and public-sector retirement systems are even more pronounced today than ever.
Why does there need to be a difference?
Notice that I keep asking a question.
Notice how I keep coming back to the crux of the issue.
(crux is an important word in debate, just like material.)
I’m not looking for “silence or acknowledgement that [my] argument is perfect.” I’m looking for a response to a very straightforward question.[/quote]
Not only is there hope for me, I both understand the pressures away from DB plans, and the pressures that remain that will promote DB plans in the private sector.
We disagree on where they’re headed in the private sector. I suspect they will plateau at somewhere between 15 and 30% of employers. As interest rates return to more normal historical rates, and the economy improves, I expect more companies to return to DB plans. (DB plans were much LESS expensive for big companies when the economy was strong and actual returns exceeded trustee assumptions. As it was for many public plans. I think it was the UC plan required NO contributions for more than a decade because investment return covered all required current contributions.)
As to why there should be a difference between private and public compensation plans…..eh. If other elements of compensation were identical, I’d agree. I’m not sure they are.
June 14, 2012 at 9:11 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745710SK in CV
Participant[quote=harvey][quote=SK in CV][quote=harvey][quote=SK in CV]
And no, my use of the word “shell” is not nit picking. You used the word.[/quote]Um, who used the word “shell?”
[/quote]
You did. You were the first to use it.
“Many public companies are merely shells”
Your words, not mine.[/quote]
So what does this mean?
Submitted by sdrealtor on June 14, 2012 – 7:34am.[/quote]
Ha, my apologies. I thought that was still you in that part conversation. In any case, it wasn’t me that brought up the shell companies.
June 14, 2012 at 8:47 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745704SK in CV
Participant[quote=harvey][quote=SK in CV]
And no, my use of the word “shell” is not nit picking. You used the word.[/quote]Um, who used the word “shell?”
[/quote]
You did. You were the first to use it.
“Many public companies are merely shells”
Your words, not mine.
June 14, 2012 at 8:45 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745703SK in CV
Participant[quote=sdrealtor][quote=SK in CV][quote=harvey][quote=SK in CV]My credibility is shot? I’m not the one that said companies with defined benefit plans don’t have any investors. You just acknowledged that 17% of Fortune 100 companies still have them. Across thousands of public companies, that would amount to hundreds that still have defined benefit plans. And every one of them still have investors.[/quote]
We’ll ignore the bit where he completely misrepresents what I said, because this one is more fun:
17% of 100 = “hundreds”
What was that about exaggeration being a bad thing?[/quote]
Read what I said and the arithmetic might be easier.
“Across thousands of public companies, that would amount to hundreds that still have defined benefit plans.”
There are roughly 15,000 public companies in the US.
15,000 x 17% = 2,550
And which part of this did I misrepresent?[/quote]
How hard is it to see? You multiplied fifteen thousand by seventeen percent to get two thousand five hundred and fifty defined benefit plans. Thats a misrepresentation.[/quote]
Well, no. I said it was hundreds and you did the math can came up with 17. I just did the math across all public companies and came up with a number. You’ll have to search pretty hard to find where I said that there are that many DB plans in public companies. Even acknowledging that some of those public companies may not be operating companies, and just using the big board listed companies, its still hundreds.
June 14, 2012 at 8:33 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745698SK in CV
Participant[quote=sdrealtor]
You “suspect” it doesnt fall between 100 and 3000 but obviously beleive it falls after that. So there we have it. You have “essentially” admited it. That wasnt so hard….just breathe and say it “I admit I misrepresented things.”[/quote]No, nothing obvious about it. There are still many private defined benefit plans. Not as many as there were 25 years ago, but they still exist. 25 years ago they were not just big company plans. There are fewer now. There will probably be fewer in the future. I don’t think they’re dead. There is no evidence that they’re dead. They remain a valuable tool in attracting and keeping good employees.
I misrepresented nothing. That argument doesn’t even make any sense. I don’t have a clue what you’re claiming I misrepresented in this context.
June 14, 2012 at 8:27 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745697SK in CV
Participant[quote=harvey]Material dude, material.
I have no doubt that you know and understand what it means, but for some reason you aren’t applying it here.[/quote]
I don’t know….if i only have counter arguments with 3 of your points, is that nit-picking? Just 2 of them?
Truth is, you don’t want a discussion, you want either silence or acknowledgement that your argument is perfect.
You win.
June 14, 2012 at 8:24 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745695SK in CV
Participant[quote=harvey][quote=SK in CV]Really? And you know this how? I suspect it doesn’t fall at all between the top 100 and the top 3000. If you can find data to support your claim, I’d love to see it.[/quote]
So why is the burden of proof always on everyone else, but never on you?
And are you really going to extrapolate the percentage of DB plans in the Fortune 100 across all public companies? You really think that is sound analysis?
Use of the word “shell” – You’re back to the nit-picks, never really left. It’s not material.
Still no real argument about the issue. Still in the cheerleader skirt. Still won’t get in the game…[/quote]
You’re the one that made the assertion, it’s not my job to back it up. And yes, I think it is sound analysis to extrapolate the 17% (or higher) across the rest of the publicly traded companies, unless you can provide better evidence. (and I’m not doing that blindly, I did find a survey yesterday that indicated an even higher percentage of S&P 500 companies have active DB plans, I can’t find it this moment.)
And no, my use of the word “shell” is not nit picking. You used the word. A shell company is one with no operations, often with minimal or no capital. Both the NASDAQ and the NYSE have capital, share, # of shareholders, and minimum trading requirements, among others. “Shell” companies would quickly become delisted.
June 14, 2012 at 8:13 AM in reply to: My next door neighbor was a cop, still under 60, been retired for more than 5 yrs #745692SK in CV
Participant[quote=harvey]sdr is spot on: Extrapolating statistics from the Fortune 100 across all public companies is ridiculous.
And I don’t really care if somebody fumbled their words a little, intentionally or unintentionally. It doesn’t matter that the numbers don’t quite jibe, because we still get the point. And the point is valid, I agree – there are still a few DB plans around.
Which brings us back to my argument, the one relevant to the topic, the one somebody tried to derail with minutia:
– DB plans are going away quickly in the private sector. They are mostly gone today.
– The reason for this decline is the same reason for any major change in the corporate world: shareholders/investors demanded the change.
– Shareholders demanded the change because it was just too difficult to determine the risk associated with DB plan liabilities on the balance sheets.
– Those risks are inherent in DB plans, and always will be. Investors will always have an unfavorable view of the risks associated with DB plans, and this will influence the stock price.
Think of it this way: If a company were to announce that it is abandoning it’s 401K program and replacing it with a DB plan, would their stock price be more likely to go up or down as a result of the announcement?
– There is no incentive for companies to offer DB plans. They can attract employees simply by paying them a fair salary.
A few private DB plans will linger on for a while, but they are, and will become, more rare. Regardless of the outcome in the public pension debate, nothing is going to reverse the trend in private DB plans.
Even though DB plans have mostly gone away in the private sector, millions of people still enjoy rewarding careers with fair compensation. It’s how most of the population lives.
What is wrong with applying the same system to the public sector? Why must their system of compensation be so different?
Anybody got an argument?
[The nit-pick feature has been disabled on this comment.][/quote]
How can anyone have an argument when you’ve instituted the anti-quibbling rule?
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