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Time for pension reform in San Diego
(continued) Admittedly, my figures are by necessity based on a simplistic model. It is impossible to calculate all the annuity choices. My goal was to show the value of the lump sum. IF the employee pulls money out faster than the presumed 8% rate of growth, then the lump sum will be smaller. But the annual payout will be commensurately bigger than the figures I gave, so that’s a wash, considering the time value of money. As far as I know, no other city in the county has two funded pension plans – perhaps none in the entire state. What possible reason can you give for San Diego taxpayers funding two pension plans, when the rest of the cities don’t? The bottom line is that it is insane for taxpayers to pay their “public servants” higher salaries than the private sector, and then grant them two pensions that together are 4-8 times higher than what the taxpayers get. You can quibble all you want, SDBLOGGER – you and your city labor unions are (continued) Admittedly, my figures are by necessity based on a simplistic model. It is impossible to calculate all the annuity choices. My goal was to show the value of the lump sum. IF the employee pulls money out faster than the presumed 8% rate of growth, then the lump sum will be smaller. But the annual payout will be commensurately bigger than the figures I gave, so that’s a wash, considering the time value of money. As far as I know, no other city in the county has two funded pension plans – perhaps none in the entire state. What possible reason can you give for San Diego taxpayers funding two pension plans, when the rest of the cities don’t? The bottom line is that it is insane for taxpayers to pay their “public servants” higher salaries than the private sector, and then grant them two pensions that together are 4-8 times higher than what the taxpayers get. You can quibble all you want, SDBLOGGER – you and your city labor unions are running quite literally the biggest con job in town.— February 8, 2008 4:37 p.m.
Time for pension reform in San Diego
VERY impressive critique, SDBLOGGER! You obviously know much more than most city workers about your plans. Nevertheless, in the end you are as wrong as the more uninformed opponents with whom I discuss such matters. BTW, I'd be more impressed with our critique if you didn't hide behind an anonymous name. I don't, and neither should you. I suspect you are someone of importance in the city bureaucracy, or perhaps a city labor union activist. To start with, you are inferring that the under-funded city defined benefit (DB) plan and the little-known SPSP defined contribution (DC) plan work pretty much the same way. They don’t. You are correct that the DB plan payout is dependent on the annuity option taken, with the appropriate reduction in the annuity payout if less than a "life only" option is chosen. But the huge lump sum payouts I'm discussing are all from the SPSP (and other DC) plans – as I understand it, the city offers no annuity option on these funds! Sure, one COULD retire and then go buy some IRA annuity payout contract from some insurance company (an unwise but safe choice, if inflation is not a concern), but apparently most city workers choose to take their SPSP proceeds and roll them over into investment IRA’s. If one retires at age 55, rolling the SPSP plans into regular IRA’s defers the need for mandatory withdrawals for 15 ½ years – and then one must start making at least the minimum IRS-mandated withdrawals, based on life expectancy. Hence there likely is still a ton of IRA money left for distribution to beneficiaries once you kick the bucket (unless you live to 100+). In this instance, if the examples I presented paid out the SPSP earnings each year and died before age 70 ½, then the lump sums I show would be exactly what their beneficiaries would receive. Obviously if they pulled out the money faster, there would be less to bequest. Conversely, if they left the SPSP funds to compound, there’d be more – a LOT more. Or one could consider taking the ROTH IRA option – paying the taxes now but then earning tax free earnings with no need to make ANY withdrawals during one’s retirement years. The money finally paid out would be tax free, so it while it would be maybe 40% less than the pretax dollar payout, the after tax value of the payout would be about the same – any all interim earnings would be tax free. For most workers retiring with over $70,000 of income, the ROTH option at such a relatively young age definitely should be considered. BTW, it gets more interesting because the employee contributions are paid with AFTER tax dollars, so they will not be taxed again upon distribution.— February 8, 2008 4:30 p.m.
Time for pension reform in San Diego
As good as his article was, Don left off two important points on my research: A. Not included is the 13th month free bonus pension payment paid out in about five out of six years to nonsafety workers for city pension investment returns that are “above expectations” or some such. B. Far more important: In addition to the pension annual payouts, the nonsafety workers get to leave the residue of their SPSP and DROP pensions to their spouses, lovers, charities, or pets. And we ain’t talking chicken feed here. (Both examples of mine that Don cites assume an 8% growth rate and that ONLY earnings are paid out during the worker's retirement.) In the first example of a 30 year city worker retiring with two pensions, the bequest to beneficiaries is a lump sum of $961,884. For the DROP participant nonsafety worker (working those extra five years after “retiring”), the lump sum payout upon death would be an astounding $1,345,913 – the equivalent of another 18 years’ top salary.— February 7, 2008 5:28 p.m.