Keeping retirement weird. Happy new year. Now the bad news.

In June I will celebrate 50 years since I was in high school. Anne and I are thinking of taking a trip late Spring to visit high school friends in L.A. for my high school reunion (the unofficial one).

We did the same thing ten years ago. I recall a great afternoon with a group of old friends having a picnic and playing music at the La Brea Tar Pits near the Los Angeles County Museum of Art.

My friend, Danny, played a sweet version of Bob Dylan’s Dream.

Now the bad news.

For those retiring in the next five years, things may be more of a nightmare than a dream.

Then, in ten years things will turn really bad.

The numbers of retired poor people in the United States continue to grow as the retired population reaches 56 million by 2020.

Nobody running for President it talking about this.

In Illinois, Bruce Rauner, Republicans and even some Democrats, talk about replacing current defined  benefit public employee pensions with defined contribution plans like a 401k.

By removing future public employees from the current retirement system, the current unfunded liability will only get worse.

Beyond public employees, over half of workers don’t have access to a workplace retirement plan.

Americans between the ages of 40 and 55 have retirement savings of $14,500.  You know too many folks who take their money out before they retire.

Of course, the rich tend to pay lower fees and get higher subsidies for their savings.

I have concerns about TRS’ recent move towards what are called alternative investment plans.  Yet, Teacher Retirement System defined benefit plans have consistently performed well with good returns.

In less than ten years, teachers and others in TRS hired after January 1, 2011 and who were placed in Tier II, will find themselves in a mess. So will the state and taxpayers of Illinois.

Those TRS members now make a smaller contribution into the system, will receive a lower benefit than Tier I members and will need to work longer until they reach the maximum benefit.

It is likely that the legislature’s rush to establish a Tier II without considering the long-term results will mean that those employees will receive benefits less than the federal requirement.

The federal tax provision,  referred to as Safe Harbor, requires public pension plans to offer retirement benefits at least as good as the minimum workers would get if they were covered by Social Security.

The catch: Since they will not meet Safe Harbor, the federal law will require Illinois public employees to join Social Security and pay a 6.2 percent additional tax to the national retirement system. The state will have to kick in another 6.2 percent, costing taxpayers more money.

Most public employees and employers in Illinois currently do not pay Social Security taxes.

Experts say that this will happen by 2027.

Happy new year.

10 Replies to “Keeping retirement weird. Happy new year. Now the bad news.”

  1. TRS is doing fantastic. According to the June 30, 2015 actuarial valuation report, the liabilities for retirees is $71 billion. The assets are $45 billion. The total underfunding is $61 billion.

    According to some, it is all due to the failure to make the contributions. Take pad and pencil, determine the contributions not made and show how they accumulate to $61 billion

    Someone calculates the contribution amount and you accept it as golden. Maybe it isn’t golden.

    Mark Glennon is impressed with the TRS actuarial valuation report but there is an actuary in New Jersey who isn’t so impressed. Buck Consultants issued warnings late in the game in New Jersey too. After the Titanic is half sunk, they yell: “Watch out for the iceberg!”

    1. Thanks. I’ve think you have made your point here. Whether there are hidden fees or charges to TRS is arguable. I’ve made that argument. But the singular issue is the failure of the state to make their payments. If the payments had been made, our pension fund would be at least 80% to 90% funded. Arguing anything else is simply not true.

      1. The SEC declared the method of calculating contributions in the State of Illinois as a fraud. They did you a big favor by doing so. You shouldn’t ignore it.

        Accepting the method of calculation as being true, you claim that TRS would be 80% or 90% funded. I am the guy that professionally did those type of calculations. I am hard sell. Show me your calculations.

        Go ahead and pluck numbers out of thin air. My pension isn’t in jeopardy. It is your pension.

        I will now fulfill my New Year’s Resolution and leave you all to your fate. I am moving onto something else.

      2. “The SEC declared the method of calculating contributions in the State of Illinois as a fraud.” Source, please?

  2. SEC citation? The scribd has been published on your blog. See your string of comments under “Looking back over 2015”. On page 2 of those two pages.

    1. Ah. That is why is asked for a citation. I reported that here when it was first reported in 2013. You are confusing matters. First, that the underfunding has been ignored by us and, then, that the SEC rules on matters of underfunding other than as it of concern to investors. The fundamental fraud is what the state has done to the members of the retirement system by missing payments to the system for decades. We are done, Mr. Konshak.

      1. Calling it fraud doesn’t make it fraud. Fraud involves deception and misrepresentation. Whatever was done (or undone) was done through budgets and appropriations which were in public. Being dismissive and refusing or declining to engage is a failure to deal with a real problem. What could be the harm with continuing the discussion that Mr. Konshak has tried to start? Moreover, finding someone to blame for the current situation is unproductive. The “blamees” probably have no legal liability (due to governmental immunity) and even if they did, they do not have the resources to pay for the damage caused — even if you beat them with a stick.

      2. It wasn’t a discussion. And I am always dazzled by the anonymous person who lectures me about who I should and when I should engage with someone else.

  3. not to mention the increased earnings on investments if the state had fully funded the pension – more money = more investments = higher return

  4. “The catch…”
    I’d love to pay Social Security! I’d pay it voluntarily! The 403b option I was misled into choosing hasn’t even begun to make up for the hit my Social Security has taken since I started working for the State of IL.

    Total fraud. There is no “safe harbor”.

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