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One thing MA does that seems crazy to me is the Option C plan that they provide which allows for people to take less of a pension and then they can list their children as beneficiaries to also get a pension after their death.
Example: Person can take 50k for reminder of their life or 40k for reminder of their life and then their children gets 2/3rds of that for 26-27k for the reminder of their life.
So this pension could be paid out for 55 years after the person only worked 35?
Generally, in these plans the payout to the child is based on the age of the retiree at death and the child's age, with the younger age receiving less per month.
One thing MA does that seems crazy to me is the Option C plan that they provide which allows for people to take less of a pension and then they can list their children as beneficiaries to also get a pension after their death.
Example: Person can take 50k for reminder of their life or 40k for reminder of their life and then their children gets 2/3rds of that for 26-27k for the reminder of their life.
So this pension could be paid out for 55 years after the person only worked 35?
This kind of thing seems incredible, and the benefit may no longer be available to new state employees, but it was not uncommon either.
Several years back, my ex's mother, a Tennessee state employee, passed away unexpectedly. I helped her navigate through the pension system, which seemed to take at least a year to get wrapped up between going back and forth between the government, her probate attorney, and accountant. She was 54 and had over thirty years of service. I made a thread on this forum about it that got hundreds of responses.
When the mother was hired in, she was married, but there was a stipulation where the survivor could specify a surviving child as an annuitant. After mom and dad divorced, she named my ex as the beneficiary. I honestly couldn't believe it at first, but it was clearly in the "TnPERS" documentation and the probate attorney was familiar with it. For TN employees, I think this benefit went away sometime during the 90s.
Keep in mind the mom was fairly low paid - $35,000 - $40,000 IIRC. I don't remember what the exact calculation was, but it was some lower percentage of mom's pension. The benefit is a little over $600/month net of all taxes.
This isn't a lot of money, but at the time, my ex was 23 and working as a waitress finishing college. She's 27 now and working as a bank teller. This is essentially a $10,000 pre-tax raise for her, and persists as long as she lives. It has taken her from working poor to lower middle class. She could easily receive benefits from this annuity for fifty, possibly sixty or more, years.
I had personally never heard of this, and while I'd say it's fairly uncommon but not truly rare, these are the cases that really make you scratch your head.
"Scratch your head" and understand why so many governmental pensions are in trouble, and ticking time bombs.
I wonder how many of these long tail obligations are inflation protected? In any case, the real actuarial cost must be huge in this low return environment.
This kind of thing seems incredible, and the benefit may no longer be available to new state employees, but it was not uncommon either.
Several years back, my ex's mother, a Tennessee state employee, passed away unexpectedly. I helped her navigate through the pension system, which seemed to take at least a year to get wrapped up between going back and forth between the government, her probate attorney, and accountant. She was 54 and had over thirty years of service. I made a thread on this forum about it that got hundreds of responses.
When the mother was hired in, she was married, but there was a stipulation where the survivor could specify a surviving child as an annuitant. After mom and dad divorced, she named my ex as the beneficiary. I honestly couldn't believe it at first, but it was clearly in the "TnPERS" documentation and the probate attorney was familiar with it. For TN employees, I think this benefit went away sometime during the 90s.
Keep in mind the mom was fairly low paid - $35,000 - $40,000 IIRC. I don't remember what the exact calculation was, but it was some lower percentage of mom's pension. The benefit is a little over $600/month net of all taxes.
This isn't a lot of money, but at the time, my ex was 23 and working as a waitress finishing college. She's 27 now and working as a bank teller. This is essentially a $10,000 pre-tax raise for her, and persists as long as she lives. It has taken her from working poor to lower middle class. She could easily receive benefits from this annuity for fifty, possibly sixty or more, years.
I had personally never heard of this, and while I'd say it's fairly uncommon but not truly rare, these are the cases that really make you scratch your head.
Quote:
Originally Posted by bigbear99
"Scratch your head" and understand why so many governmental pensions are in trouble, and ticking time bombs.
I wonder how many of these long tail obligations are inflation protected? In any case, the real actuarial cost must be huge in this low return environment.
You are ignoring how many employees die early or long before their projected life expectancy. My pension fund explained that in total pension plans actually gain a little due to people dying earlier than projected even with paying some benefits to survivors. Also, many retirees pick maximum payout with nothing left for survivors.
Again, the biggest hits to pensions were lower returns than projected due to Wall Street irregularities and municipalities not meeting their obligations.
You are ignoring how many employees die early or long before their projected life expectancy. My pension fund explained that in total pension plans actually gain a little due to people dying earlier than projected even with paying some benefits to survivors. Also, many retirees pick maximum payout with nothing left for survivors.
Again, the biggest hits to pensions were lower returns than projected due to Wall Street irregularities and municipalities not meeting their obligations.
Of course some people die younger. You think actuaries don't know this. It's factored into plan design, and is also part of the calculation of the present value of the income stream to be paid out.
Blame Wall Street? Only if you have ignorant managers of the pensions. But they never should have been in charge. Blame your government leadership. They're the ones that fall for the Wall Street siren.
I live in NJ, where our pension liabilities are huge, and our state keeps getting credit downgrades, in part due to the failure of the state to deal with the pension liabilities. I won't rant about abuse in the system; that's for another thread. But amount of money that is owed to the pension fund is mind-boggling. Sooner or later, that train is pulling into the station, and reality will have to be faced. The fix probably won't be painless for taxpayers. My sister and her husband are leaving NJ later this year, retiring in another state, because of (a) property taxes; and (b) the giant Sword of Damocles known as pension fund liabilities that is dangling over all of our heads.
While I agree that something else could come down the pike as the next big financial crisis, we ignore the public pension problems at our peril. Hey, a little alliteration there.
I live in NJ, where our pension liabilities are huge, and our state keeps getting credit downgrades, in part due to the failure of the state to deal with the pension liabilities. I won't rant about abuse in the system; that's for another thread. But amount of money that is owed to the pension fund is mind-boggling. Sooner or later, that train is pulling into the station, and reality will have to be faced. The fix probably won't be painless for taxpayers. My sister and her husband are leaving NJ later this year, retiring in another state, because of (a) property taxes; and (b) the giant Sword of Damocles known as pension fund liabilities that is dangling over all of our heads.
While I agree that something else could come down the pike as the next big financial crisis, we ignore the public pension problems at our peril. Hey, a little alliteration there.
What I bolded says it all. We shouldn't generalize to the United States from one state (or a handful of states) which is (are) the poster boy(s) for fiscal mismanagement over the decades.
True, it's scary to contemplate what will eventually happen in New Jersey, Illinois, and a few other states. I don't mean to make light of the problems there. But the thread title mentions a "financial crisis that rocks America", which is just hyperbole of the "sky is falling" type.
I think with the Public Pensions it is always a political football. While I would agree that there are some major perks and abuses of it, which are always used in the news to demonize and try to end them. Those are the minority, so rather than rnding it the talk should be about closing down those abuses that are usually only available to the top salaried people in the pension fund.
We also need to look at the state's actions in supporting or creating the picture of a failing pension.
#1 the rating on the funding abilities to pay out are usually based on whether it could cover the case in which all of its members claimed pay out at the same time. Something that is not ever going to happen.
#2 many states such as Florida are moving many of its new employees go into 401k plans instead of the pension plan. The result is that the Pension fund has less and less employees paying into it, so it's funding rating will be affected.
#3 In Florida, since that's the state that I am in. Back in 2007 when the economic down turned happened, the state levied a 3% fee to those workers on the pension fund to help keep it strong in those bad years. Well what they didn't explain was that they used that 3% from employees to make up for 3% the state used to fund the pension fund and move that amount towards the state regular operating budget. That 3% was never put back into the state funding for pension and the workers to this day still are paying that amount.
You are ignoring how many employees die early or long before their projected life expectancy. My pension fund explained that in total pension plans actually gain a little due to people dying earlier than projected even with paying some benefits to survivors. Also, many retirees pick maximum payout with nothing left for survivors.
Again, the biggest hits to pensions were lower returns than projected due to Wall Street irregularities and municipalities not meeting their obligations.
I know this situation is not unusual, but I can't imagine it being that uncommon either. In any event, these benefits were phased out years ago and probably don't apply to that many workers today.
Many pensions assumed overly aggressive returns, but that's water under the bridge at this point.
Quote:
Originally Posted by Escort Rider
What I bolded says it all. We shouldn't generalize to the United States from one state (or a handful of states) which is (are) the poster boy(s) for fiscal mismanagement over the decades.
True, it's scary to contemplate what will eventually happen in New Jersey, Illinois, and a few other states. I don't mean to make light of the problems there. But the thread title mentions a "financial crisis that rocks America", which is just hyperbole of the "sky is falling" type.
As you said, many states aren't in that boat and are generally far more fiscally healthy. The "bad off" states offer an interesting paradox. For an individual seeking government employment, these may be the best states to live in due to high pay and generous benefits, but it is that high pay and generous benefit level that, collectively, makes the state fiscally weaker.
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