Archives for category: Pensions

School pension costs are set to increase 37 percent next school year, the state Teacher’s Retirement System quietly noted in a bulletin to districts this month. [up from 11.84% this year]

The increase is slightly less than the high end of the range estimated by the $80 billion fund in October. In October, the fund predicted that pension costs for the 2013-14 school year, which starts July 1, would grow to between 15.5% and 16.5% of payroll.

The actual rate, which was set this month, is 16.25%, the bulletin said.

School pension costs have soared in recent years because of the decline of Wall Street investments. A decade ago, schools paid nearly nothing into the fund, which has about 425,000 members and retirees.


Like Comptroller Thomas DiNapoli, who is the sole trustee of the $150 billion pension fund for state and local workers, the Teacher’s Retirement System is reviewing whether to support Gov. Andrew Cuomo’s pension-smoothing proposal. It would let schools and local governments pay a flat rate of 12.5 percent of payroll for pensions for the next 25 years, rather than deal with the annual ebb and flow.

School pension costs to rise 37 percent next year
Posted by Joseph Spector • February 13, 2013 • 9:41 am
Pension Contribution – 2013-2014 (pdf file)

from Bloomberg, a useful list:

  1. Giving out raises faster than revenues are growing.
  2. Giving out raises and increasing benefits when revenues are falling.
  3. Giving out raises and benefits retroactively.
  4. Allowing employees to cash out unlimited amounts of sick leave when they retire.
  5. Providing lifetime health care for retirees.

In San Jose, these mistakes have resulted in a sharp drop in number of public employees per 1000 residents:

(click on chart to enlarge)

March 8, 2012 conversation with an employee of IBM, who explained IBM’s pay schedule to me:

  • every year all employees are evaluated on a scale of 1 to 3
  • each employee receives a rating of 1 (highest), 2+, 2, or 3 (lowest)
  • IBM grades on a curve, so if you have a team of 10 employees, probably only 2 of them can be given 1s no matter how good they all are
  • she thought perhaps 5 of the 10 can receive a rating of 2+ or 2, which means 3 would have to be given ratings of 3
  • she was given a rating of 1 last year & received a raise of 3.5%
  • the amount of the raise given to a ‘1’ varies year to year according to how well the company has done
  • this year she was given a rating of 2+ and will probably receive a raise of 1%
  • a person who receives a rating of 3 receives no raise at all
  • she currently pays $300/month for health care benefits
  • IBM ended pensions in the 1990s

4 is not 2

black column: police and fire
white column: teachers

As I recall, New Yorkers receiving public pensions do not pay state taxes.

Measuring Average Public Pensions
Number 7 March 2012
Empire Center

While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul….


In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent…. But that change would mean finding an additional $1.9 billion for the pension system every year….

…to many observers, even 7 percent is too high in today’s market conditions.

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”

4 is not 2.

35 is not 2.

Also, and by the same token, 8 is not 7.

The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long termm…. Actual experience since 2000 has been much less, 5.7 percent over the last 10 years….
Public Pensions Faulted for Bets on Rosy Returns
Published: May 27, 2012

8 is not 5.7, either.

The stock market collapse of 2008 decimated public pension fund investments, and municipalities are now being asked for greater contributions to make up for the losses. The impact has been drastic: Three percent of New York property tax collections were used to pay pension costs in 2001; by 2015, pension costs are expected to eat up 35 percent of property tax collections.
Deficits Push N.Y. Cities and Counties to Desperation
Published: March 10, 2012

Earlier this month, we established the fact that 4 is not 2.

35 is also not 2.

School mills, revaluation, etc.

The general rule: if you want to work for 50 years, retire for 20, maintain your expected standard of living, and expect a 5%/year real return on average, then saving 7% of your income should do it.

If you want to build up assets–to work for 50 years and then live off your income and hand down your capital to your descendants–it is, of course, harder, but saving 14% of your income should do it.

The key is (a) start early, (b) continue, and (c) don’t trade with people who know more than you do.

Brad DeLong

In terms of school spending, what’s significant about this passage is the fact that employees hired before July 27, 1976 will receive pension payments that amount to something in the neighborhood of $2,500,000 all told – 2.5 million dollars – along with free health care for life (no co-pay) without having had to save for retirement. Employees hired after 1976 had to contribute 3% of their salaries for 10 years.

Click image to enlarge

Public Employee Pensions in New York State
My Faith-Based Retirement by Joe Nocera
4 is not 2