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California pensions impact on taxes and municipal bonds

By AD following x   2014 Mar 2, 7:26am 7,685 views   39 comments   watch   nsfw   quote     share    


"In San Jose and across the nation, state and local officials are increasingly confronting a vision of startling injustice: Poor and middle-class taxpayers — who often have no retirement savings — are paying higher taxes so public employees can retire in relative comfort. In many places, the problem is proving difficult to address ­because public-sector pensions have strong legal protections and, union officials argue, the benefits are hardly lavish. But the strain on government budgets is undeniable, and California officials are taking the first steps toward a great leveling between retirement’s haves and have-nots."

http://www.washingtonpost.com/business/economy/in-san-jose-generous-pensions-for-city-workers-come-at-expense-of-nearly-all-else/2014/02/25/3526cd28-9be7-11e3-ad71-e03637a299c0_story.html

#investing

3   AD   ignore (0)   2014 Mar 2, 10:49am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Any comments for this thread ? Such as impact on real estate taxes and/or income taxes in California ?

4   AD   ignore (0)   2014 Mar 2, 11:14am   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

this article is somewhat misleading. it says:

"more than half of private-sector workers have no access to retirement savings plans on the job"

but anyone can open an IRA and save some money.

I think the article means no access to pensions or to employer matched 401k's.

5   AD   ignore (0)   2014 Mar 2, 11:28am   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

And they need to get rid of these stupid pension management companies like CALSTERS and CALPERS. Tons of money out the window in fees.

They could go with a thrift savings program like the Thrift Savings Program (TSP) for the government. Instead of getting say 1% for every year, the California civil servant could get a 10% match to their 401k or TSP. That way the money is given upfront instead of promised in the future.

6   marcus   ignore (10)   2014 Mar 2, 11:31am   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

I feel bad for these people but they made deals funded by future generations who had no say in this. They can't cry when the future does not turn out as expected...

If they (pensioners) lean anything from this it should be that all contracts must pay dollars now, not in the future from unborn generations.

Your point of view is based somewhat on ignorance of what pensions are. That is if you are generalizing to all govt pensions.

People need to understand that many government workers do not have the exorbitant pensions of San Jose workers.

Many pensions of govt workers are actually funded nearly half by money taken out of workers pay checks, and the other part by the employer contribution (the govt). In other words much like Social Security. It is simply part of the actual employee compensation cost, in the past. IF they are going to lower pay, then do so, but don't renig on money that supposedly has already been paid to employees in the past.

I've had these arguments on here many times with people who don't understand the concept of compound money growth, and that if someone puts in 35 or 40 years, paying 5 to 8% of their pay in to a fund, with the employer putting another 8%(or a few percent more as a form of agreed upon compensation), that it will in fact grow to be worth what those pensions are worth.

Now we are in a situation with governments underfunded and broke, and baby boomer retirements on the horizon, ad=nd a population that don't have an understanding of what the pensions are or how they are funded, they just know "duh...that sounds too good. I don't have that."

Really? Are the ignorant masses going to be convinced that the government needs to raid it's employees pensions. Really ?

This is 100% wrong:

" they made deals funded by future generations who had no say in this."

7   marcus   ignore (10)   2014 Mar 2, 11:36am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Underfunding. In other words not paying people their promised compensation. In the past !!

8   marcus   ignore (10)   2014 Mar 2, 11:41am   ↑ like (0)   ↓ dislike (0)   quote   flag        

THey were supposed to fund them, but when budgets are tight, the first thing to go (which they think can be paid later , or worse republicans are in the "starve the beast morde" either way they were underfunded over time.

And now the ignorant masses are being fed the line that the reason governemtns are broke is because of pension costs.

If the costs were going to be too high, even with the kind of stack market growth we've had, then they shouldn't have agreed to such pensions in the first place.

But they were never supposed to be funded by future generations.

That's just a lie told to justify raiding the pensions.

Actually they don't even tell that lie, but evidently, people are quick to make this inference. It's implied by stories such as these.

By the way, bringing to someones attention that they are uninformed about some issues, is not calling them names.

9   AD   ignore (0)   2014 Mar 2, 11:45am   ↑ like (1)   ↓ dislike (1)   quote   flag        

marcus says

I've had these arguments on here many times with people who don't understand the concept of compound money growth, and that if someone puts in 35 or 40 years, paying 5 to 8% of their pay in to a fund, with the employer putting another 8%(or a few percent more as a form of agreed upon compensation), that it will in fact grow to be worth what those pensions are worth.

You need to educate yourself or at least to admit the truth that the government workers do not contribute more than 1 to 2% of their salaries to the pension system. Stop exaggerating in order to protect the government workers.

Every dollar that goes into these pensions is one less dollar going to government programs for the poor !!!!!!!

10   marcus   ignore (10)   2014 Mar 2, 11:47am   ↑ like (0)   ↓ dislike (1)   quote   flag        

They, are the government. They should have been funded weither by not spending on other things, or by taxes, or they should have renotiated the pay rate (and pension promises) the moment it became cleat they couldn't afford them.

To underfund them for a decade r more, and then cite the cost of funding them as too high (based on the cost of catching up with past underpayments) because of what wasn't paid in the past,...is deceptive to say the least.

But hey, you're buying it.

11   mell   ignore (2)   2014 Mar 2, 11:48am   ↑ like (2)   ↓ dislike (0)   quote   flag        

marcus says

That's just a lie told to justify raiding the pensions

1. You don't know if the costs are going to be too high, so making promises on "guaranteed" returns is the first irresponsibility.

2. If you believe/know someone underfunded the pensions, you still have no right to take it from future generations. It's like stealing your kid's bike because yours got stolen.

12   marcus   ignore (10)   2014 Mar 2, 11:49am   ↑ like (0)   ↓ dislike (1)   quote   flag        

adarmiento says

You need to educate yourself or at least to admit the truth that the government workers do not contribute more than 1 to 2% of their salaries to the pension system. Stop exaggerating in order to protect the government workers.

I'm a teacher in California. We pay 8% of our salary, which shows as a deduction every month on our pay check.

Not that you are interested in facts, but here:

http://www.letstalkpensions.com/myths-and-facts

13   AD   ignore (0)   2014 Mar 2, 11:51am   ↑ like (2)   ↓ dislike (0)   quote   flag        

marcus says

To underfund them for a decade r more, and then cite the cost of funding them as too high (based on the cost of catching up with past underpayments) because of what wasn't paid in the past,...is deceptive to say the least.

The pension contributions (i.e., CALPERS) from the government were based on stock market performance and forecasts. What happens if there is a drop in tax receipts and a decrease in the stock market ? Does that mean they raise taxes to put the money into CALPERS ?

14   marcus   ignore (10)   2014 Mar 2, 11:58am   ↑ like (0)   ↓ dislike (1)   quote   flag        

adarmiento says

The pension contributions (i.e., CALPERS) from the government were based on stock market performance and forecasts. What happens if there is a drop in tax receipts and a decrease in the stock market ? Does that mean they raise taxes to put the money into CALPERS ?

Anything is possible.

I can even envision a situation where benefits had to be renegotiated.
(but we aren't close to that spot now).

Right now in addition to changes Jerry Brown and the Califonia legislature have already made, that is pension reforms, maybe more reforms are needed, and maybe another 2 or 3% of the states budget should go in to funding calpers and calstrs. It's c ommittment, plain and simple.

What I don't like is that at the first moment that government budgets are tight, based on recent year under funding, that the Koch brothers, Mish and others start paying for and spreading propaganda about how government workers don't deserve their pensions.

15   AD   ignore (0)   2014 Mar 2, 12:01pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

marcus says

What I don't like is that at the first moment that government budgets are tight, based on recent year under funding, that the Koch brother, Mish and others start spreading propaganda about how government workers don't deserve their pensions.

Too bad as it is not just those political ideologue types that are saying the same thing. I don't like that you disingenuously point to the Koch brothers and not admit that the complaints are coming from independent voters/taxpayers who are not on the government pension and salary largesse.

So which government agency do you work (or did you worked for), Marcus ?

16   marcus   ignore (10)   2014 Mar 2, 12:04pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

There are many more facts you could read here, that is if you have an open mind.

http://www.letstalkpensions.com/myths-and-facts

17   marcus   ignore (10)   2014 Mar 2, 12:07pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

adarmiento says

So which government agency do you work (or did you worked for), Marcus ?

I guess you didn't read my response to your lie above about govt employees only paying in 1 or 2%.

18   marcus   ignore (10)   2014 Mar 2, 12:10pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

adarmiento says

I don't like that you disingenuously point to the Koch brothers and not admit that the complaints are coming from independent voters/taxpayers who are not on the government pension and salary largesse.

Translation: you don't know who is behind the misinformation campaigns against government workers.

They want to lower the pay of all workers, but government workers are the next step.

19   marcus   ignore (10)   2014 Mar 2, 12:18pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I have to stop this idiocy. You make no sense.

jojo says

Why was the 'government' paying little or nothing to the pension? And what was happening to the money during this time. I will tell you. 'They' (we) were using the money to plug tax holes and lowering our tax rates in turn.

Let me get this straight, if the government chooses to not honor it's commitments when the markets a re rallying hard (pension funds going up enough without the contributions), because hey the money was well used.

But now when the pension funds are underfunded, it's selfish for workers to think that they are entitled to their pensions, and that the govt should pay for those years that they didn't pay their contractual agreement in to the funds?

On to ignore with you.

20   AD   ignore (0)   2014 Mar 2, 12:18pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

True Marcus, "Workers who are members of CalPERS contribute 5%-10% of their salaries for retirement benefits."

ref: http://en.wikipedia.org/wiki/CalPERS#Member_contributions

Federal Civil Servants hired before 2012 usually do not pay more than 1 to 2% to their pensions.

21   AD   ignore (0)   2014 Mar 2, 12:25pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Marcus, I agree if they give say 8% of salary to CALPERS, that a 5% inflation adjusted return on investment would mean the contribution would grow by 4.3 times in 30 years. So if you earn $60,000 a year and contribute 8%, then CALPERS should have at least $600,000 set aside for you after 30 years of service.

reference: http://www.calpers.ca.gov/index.jsp?bc=/member/natl-guard/faqs/contributions.xml&pst=ACT&pca=PA#How_much_will_I_contribute_to_CalPERS_for_National_Guard_membership?

22   AD   ignore (0)   2014 Mar 2, 12:29pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

What part of my argument do you not understand? The money was used to plug tax holes that were created by the same people who now say the money was earned.

Do you mean that the 5 to 10% contributions from CALPERS covered employees went to funding the Californian government ? Or to buy Californian bonds just like Social Security went to buying US Treasury notes ?

23   marcus   ignore (10)   2014 Mar 2, 12:33pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

adarmiento says

Marcus, I agree if they give say 8% of salary to CALPERS, that a 5% inflation adjusted return on investment would mean the contribution would grow by 4.3 times in 30 years. So if you earn $60,000 a year and contribute 8%, then CALPERS should have at least $600,000 set aside for you after 30 years of service.

Employees have 8% deducted from their salary. For example you take a job that pays 50K, $4000 is deducted from your pay. But the employer (the state or local govt. or district etc) pays another 8% to 12%, in this exampleanother 4 to 6K in to the fund. This is the persons annual compensation, by contract, and it's in the past.

For many state government jobs this compensation is a trade off. That is the worker is making a little less in the public sector, but the benenfits are alittle better.

Now that things are tight, with high unemployment and a tougher job market in the private sector, people are singing a different tune. All of a sudden, people are envious of govt workers.

But for someone retiring now in the public sector with 35 or 40 years in., for most of that time, that was not the case.

24   AD   ignore (0)   2014 Mar 2, 12:34pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

CALPERS states that contributions are to earn 6% interest. That seems rather low when you look at the S&P 500 earning about 10.5% annually from 1987 to 2013.

ref: www.calpers.ca.gov/index.jsp?bc=/member/natl-guard/faqs/contributions.xml&pst=ACT&pca=PA#How_much_will_I_contribute_to_CalPERS_for_National_Guard_membership?

25   AD   ignore (0)   2014 Mar 2, 12:58pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

Calpers is a pension plan so they are focused on fixed income returns. Barclays bond index is a more appropriate benchmark.

I am looking at income funds which heavily invest in US federal and state bonds and they earned about 5.7% annually for the last 15 years. Seems like CALPERS is conservative with benchmarking to the bond funds or index.

26   AD   ignore (0)   2014 Mar 2, 1:07pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

What makes you think CALPERS is conservative compared to bond funds? 6% for calpers vs 5.7 for the benchmark seems aggressive to me.

I believe that CALPERS should be indexed to 50% of a Wilshire 5000 and 50% to a government and corporate bond index.

27   spydah_hh   ignore (0)   2014 Mar 2, 1:10pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

marcus says

I've had these arguments on here many times with people who don't understand the concept of compound money growth, and that if someone puts in 35 or 40 years, paying 5 to 8% of their pay in to a fund, with the employer putting another 8%(or a few percent more as a form of agreed upon compensation), that it will in fact grow to be worth what those pensions are worth.

The problem is this isn't how it works.

28   marcus   ignore (10)   2014 Mar 2, 1:49pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Wouldn't it be wonderful if we could get all kinds of government services for free ?

I like the services. I just don't think we should have to pay for them.

29   marcus   ignore (10)   2014 Mar 2, 1:50pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

spydah_hh says

The problem is this isn't how it works.

No, the problem is you are a far right idealogue with a closed mind.

Please do some homework before spewing your misinformation.

http://www.letstalkpensions.com/myths-and-facts

30   AD   ignore (0)   2014 Mar 2, 2:49pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

marcus says

No, the problem is you are a far right idealogue with a closed mind.

Please do some homework before spewing your misinformation.

http://www.letstalkpensions.com/myths-and-facts

Cal government going to take from CALPERS for more social spending for illegal immigrants and their children.

31   HydroCabron   ignore (1)   2014 Mar 2, 3:23pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

adarmiento says

Cal government going to take from CALPERS for more social spending for illegal immigrants and their children.

Don't blame you, don't blame me, just blame the guy behind that tree!

Free-loading labor unions and illegal immigrants are to blame for everything. Everyone knows that!

32   spydah_hh   ignore (0)   2014 Mar 2, 9:29pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

marcus says

spydah_hh says

The problem is this isn't how it works.

No, the problem is you are a far right idealogue with a closed mind.

Please do some homework before spewing your misinformation.

http://www.letstalkpensions.com/myths-and-facts

Dude I work for the state and it doesn't work like what you're saying. Our retirement is promised by the number of years we work, our compound interest doesn't mean anything. If I work for 30 years I'll receive 60% of my highest working paycheck. Officers will receive anywhere from 75% up to 90% of their highest working paycheck. This doesn't even include medical benefits which we can get full medical benefits after 20 or 25 years of working for the state.

However, you might be under a different bargining unit so your pension program maybe different but for me I am with the SEIU 1000 and my pension is depending on the number of years I worked and my highest gross salary because if I work 30 years I'll receive 60% of that salary.

So the question is, how can the state promise me 60% of my highest gross salary when they have no idea how the markets will respond by the time I retire? Simple they don't know, which is why pensions are underfunded. They make unrealistic investment returns in the market.

Btw my mother has already retired and she gets paid 60% of her highest working salary after working 30 years. I know officers (personal friends) who retired and get paid 90% of their highest salary which for the ones I know made no less than 130k in their highest year due to all the OT they get and their base salary is about 75k. So in their case they get paid more in retirement than they did while working and they haven't collected SS yet. Once my mother gets her SS she'll get paid the same now as she did while working.

So I am sorry Marcus, but you need to get your head of out of your ass and stop saying that CA pensions are not underfunded or say it's underfunded because government spent the money. NO, it's underfunded because we were promised something unrealistic to begin with.

33   CovfefeButDeadly   ignore (5)   2014 Mar 2, 9:43pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I'm not CALPERS. Including medical retirement(my union stupidly voted to conceed vested benefits), our contribution is somewhere in the 6-8% range.

And Spydah, while I'm not particularly familiar with your retirement system, if be shocked to hear of any retirement system that allows OT to be included in highest year salary calculations.

34   marcus   ignore (10)   2014 Mar 2, 10:58pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

spydah_hh says

Dude I work for the state and it doesn't work like what you're saying. Our retirement is promised by the number of years we work, our compound interest doesn't mean anything. If I work for 30 years I'll receive 60% of my highest working paycheck.

Yes, I understand.

The reason that understanding the concepts of compound interest and exponential growth are key is that it helps one answer this question:

If 8% of my pay is deducted from my pay check and put into a pension fund, and my employer puts an additional 8 to 12% of my salary into that fund, that is if a total of 16 to 20% of my salary amount is put into a fund every year for for 30 years, would it be worth my getting a check for 60% of my ending pay thereafter ?

And the answer is yes. Especially when those running the funds get an average of 8% return compounded.

THe situation I am describing is where people and their employer pays in, in place of Social security, not on top of it, as you imply.

35   Blurtman   ignore (1)   2014 Mar 2, 11:46pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

jojo says

@marcus

I dislike these 'the government did it' type excuses. The government is you and me and the rest of society. We are the government, are we not? We elect our representatives and they serve us, do they not?

Why was the 'government' paying little or nothing to the pension? And what was happening to the money during this time. I will tell you. 'They' (we) were using the money to plug tax holes and lowering our tax rates in turn. So the money was not really contributed by you or I because we were contributing '8%' and then lowered our other taxes to offset this'.

You can't seriously expect your kids to make up this selfish choice, can you?

If we were the government, the Wall Street bailouts would not have occurred. Try again.

36   mell   ignore (2)   2014 Mar 2, 11:52pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Blurtman says

If we were the government, the Wall Street bailouts would not have occurred. Try again.

Yeah, but still no excuse to financially rape your children.

37   CovfefeButDeadly   ignore (5)   2014 Mar 3, 2:02am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Police and firefighters are on a different pensions platform than other government workers.

If your issue is with public safety personnel, label it as such. Don't condemn all pensions and then use public safety pensions as your factual backing.

38   humanity   ignore (0)   2014 Mar 3, 2:56am   ↑ like (0)   ↓ dislike (0)   quote   flag        

jojo says

We live in a representative democracy... that means we all take responsibility for what does or does not happen....

Exactly, this is why we all take responsibility for pensions being underfunded.

Good to see that you finally get it.

jojo says

However, I don't believe in these pension systems; you could say that I am anti pension plan.

But that's because your lack of understanding and emotions rule you.

39   DJT   ignore (0)   2014 Mar 4, 8:46am   ↑ like (1)   ↓ dislike (0)   quote   flag        

adarmiento says

marcus says

I've had these arguments on here many times with people who don't understand the concept of compound money growth, and that if someone puts in 35 or 40 years, paying 5 to 8% of their pay in to a fund, with the employer putting another 8%(or a few percent more as a form of agreed upon compensation), that it will in fact grow to be worth what those pensions are worth.

You need to educate yourself or at least to admit the truth that the government workers do not contribute more than 1 to 2% of their salaries to the pension system. Stop exaggerating in order to protect the government workers.

Every dollar that goes into these pensions is one less dollar going to government programs for the poor !!!!!!!

Totally incorrect. My husband is a Firefighter Paramedic and we pay 12% into our retirement each month. We pay the entire portion. The city does not make a contribution. So many people have misinformation about how public employee benefits are working these days.


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