[Mpls] City pension task force releases recommendations

[Terrell Brown]

--- David Brauer <mplslist at tcq.net> wrote:

> 
> Interesting you should mention this. The returns, by fund, are
> actually
> quite decent. They are managed mostly be pensioner-elected boards -
> even
> though, when the market-driven returns dip too low to fulfill the
> funding
> formulas, the taxpayers have to make up the difference. (In the case
> of one
> city pension fund, the moment an employee retires, the city has to
> contribute the actuarially necessary funds for that person's pensions
> in a
> lump sum - instead of 'paying as you go.' If Social Security or any
> given corporation had to do this, they'd be broke.)

[TB] I think the implication that corporate pension plans are
underfunded is unfair to many of them.  Many are fully funded, meaning
that they have the assets to fund the benefits of retired AND current
employees.  Back in the market boom, some plans were so overfunded that
not only were employers not needing to contribute money, but they were
taking out some of the overfunding (yes this is allowed, plan
participants don't have the right to more than is due them under the
plan).  It's the underfunded plans that make the headlines.

One of the problems with the city plans is that they have paid bonuses
to retirees, the famed "13th checks".  That is one of the reasons the
plans have problems, you can't plan on certain average investment
returns but when you get more than that give it away.  The plans need
to be managed by professional managers, not a board of plan
participants.

> Here's a question to ponder (you can answer in your own head or on
> the
> list): What do you consider a fair yearly pension for a cop or
> firefighter
> who's worked a full career? No peeking at the report, and if you
> already know the answer, remain on the sidelines.

[TB]  There isn't a single answer to that question, there is a range of
answers.

First lets say that a full career is 30, even 35, years.  Do you pay
the same retirement benefit to a 55 year old who retires after 30 years
as to a 65 year old who retires after 30 years?  The 55 year old would
be expected to receive benefits for about 10 more years than the 65
year old making his/her benefit much more valuable.

Do you intergrate the plan with Social Security?  The city, as
employer, has contributed toward a retirees Social Security benefits. 
Should the benefit be such that the total equals a specific amount. 
This integration is common with private sector plans although not
present in all of them.

Generally, I'd say that a benefit that provides a combined income from
the pension plus Social Security of around 2/3 of income (pre-overtime)
earned toward the end of the career would be appropriate.




Terrell Brown
Loring Park