Comments on: Why states shouldn’t adopt defined-contribution pensions http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Ula Gibler http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/comment-page-1/#comment-55650 Sun, 19 Oct 2014 16:48:16 +0000 http://blogs.reuters.com/felix-salmon/?p=7474#comment-55650 is but durable shades by a plummy red to palest pink

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By: TFF http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/comment-page-1/#comment-24479 Thu, 03 Mar 2011 23:27:12 +0000 http://blogs.reuters.com/felix-salmon/?p=7474#comment-24479 Yes, that kind of buyout can be a win-win for everybody involved. The schools save enough on ONE year of salary for the veteran to pay for the buyout. And typically the buyouts I’ve seen are structured in a way that they credit towards the “final three years salary” calculation for the pension. The teacher accepting the buyout typically settles for less than an 80% pension, but if you are 60 years old and your health is failing, a 50% pension sounds a whole lot better than dying on the job (as a 65 year old Fitchburg teacher did after breaking up a fight).

I’ve worked with teachers who accepted a buyout. A new teacher always struggles a bit the first year on the job, but their students are STILL better off than with an embittered veteran who is simply hanging on for the pension (and calling in sick a dozen times a year). And by the second or third year, a good young teacher will be doing pretty well.

There is value to having some veterans around the department (we hired a couple for balance when all of the originals were retiring en masse), but teaching effectiveness doesn’t substantially improve beyond the fifth year on the job. After that point it is simply a question of how much energy the teacher has to give her students.

I have mixed feelings about public education these days. It isn’t nearly as bad as people seem to believe, at least not in the suburbs, but without public support it struggles to survive. Unions can negotiate salaries and benefits — but they can’t negotiate other critical factors such as staffing levels or supply budgets (ever try feeding newsprint through a copier because the school ran out of white paper in the middle of May?). It would be hilarious if it weren’t so sad.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/comment-page-1/#comment-24478 Thu, 03 Mar 2011 23:03:48 +0000 http://blogs.reuters.com/felix-salmon/?p=7474#comment-24478 Exactly, y2kurtus. You could make a case that a teacher hired under a pension plan is entitled to that pension plan until they voluntarily retire, but that would be a pretty weak case. And as you point out, the high assumed return means that the obligation is dramatically diminished for a teacher who is ten years away from retirement.

My buyout plan would offer two alternatives:
(1) Accumulated contributions compounded at an 8.25% rate.
–or–
(2) A pension at retirement as promised (a percentage of the three highest years, based on the age at retirement) but with no further accumulation of “creditable service”.

The former would be more than fair for anybody with less than 20 years in the system, while the latter would mean that teachers in their 50s and 60s (of which there aren’t many right now) aren’t losing too much.

“I’d like to live in a world where great teachers made 100k decent teachers made 50k and crappy teachers were fired for non-performance…”

I worked in a district where both great and decent teachers made $50k (or less, since most of the department was young) and crappy teachers were fired for non-performance. The schools aren’t truly as much of a disaster as people pretend — for the most part they reflect the traits of the community they serve.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/comment-page-1/#comment-24477 Thu, 03 Mar 2011 23:01:05 +0000 http://blogs.reuters.com/felix-salmon/?p=7474#comment-24477 “Teachers ALREADY have the right to quit their jobs. You aren’t granting them anything new.” the article below is from my local paper. What they are being offered (an 41 out of 200 took it) is a cash payment to leave. That’s new. The payment has no direct impact on their pension other than obviously takes out their last years of service accrual they can keep the money in the plan and get the plans assumed rate of return.

http://www.pressherald.com/news/maine-Po rtland-schools-retirement-incentive-dead line.html

The towns love it because they can retain the younger cheaper teachers earning 40k and lose the older more expierenced teachers earning 55-65k. In the current system those older teachers cannot be fired unless charged with a felony. Paying them to retire early saves the towns money in year one.

As a parent of 2 I hate the idea of turning teaching into an annual bidding to find the low cost providers… that is a road to socital ruin…

At the same time if someone would rather accept 20k to not teach than 65k to teach… I’ll take my chances and place the fate of my childrens future into the hands of the untested 25 year old right of of grad school.

The only moral outrage I have is when I see people who know they are accountable to no one act that way. From everything you’ve ever posted TFF I know that you are as against that kind of system as I am.

Best hopes for more funding rather than less in public education and also for better management of those dollars.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/comment-page-1/#comment-24476 Thu, 03 Mar 2011 22:34:26 +0000 http://blogs.reuters.com/felix-salmon/?p=7474#comment-24476 “But you surely are not willing to set aside centuries of contract law, are you?”

See GM Senior Secured bondholders roughly 25% recovery vs Union benifits trust (junior to the bondholders) roughly 55% recovery.

See Also WaMu secured bonds holders partial recovery vs unsecured depositors (junior) full recovery. Contract law has taken it pretty hard on the chin the last few years. (To be clear I agree that’s bad thing.)

“The state OWES exactly what it has promised to pay.” Here we agree fully TFF. Give the teachers their money god knows most have earned it…. some many times over. Issue billions of dollars of bonds while you still can and buy out the teachers at the rate of return assumed by the plan.

That rate cuts two ways. If I owe you a million dollars at 62 (your claimed 80% income replacement age based on a 70k sallary) than at 61 I owe you 917,500- 1 year of service credit. At 60 I owe you 841,806- 2 years of service credit and so on. I still owe a 47 year old teacher real money but no where near the million bucks I’ll owe them in 13 years.

That’s why pension plans were so easy to tear down in the corporate sector… ERISA entitles employes only to what they actually earned. If you’ve got 20 years in I only owe you half a pension and I owe it to you in 20 years so I can discount it back for 20 years and give you that number to roll into your 401k type plan. Then it’s up to you to contribute 11% of your sallary the next 20 years and earn 8.25% on all of it like clockwork until you hit retirement age.

I’d like to live in a world where great teachers made 100k decent teachers made 50k and crappy teachers were fired for non-performance…

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By: TFF http://blogs.reuters.com/felix-salmon/2011/03/01/why-states-shouldnt-adopt-defined-contribution-pensions/comment-page-1/#comment-24463 Thu, 03 Mar 2011 01:56:09 +0000 http://blogs.reuters.com/felix-salmon/?p=7474#comment-24463 TinyOne, I personally believe that defined pension plans should be ended immediately. No new enrollment. They are bad for both the employees and the employers, a lose-lose situation.

But they represent a legal obligation to those currently enrolled. At the very least, those contributors are owed the actuarial value of their present status in the plan. For those with 20+ years in the system, you can’t reasonably kick them out. For those with less, you’re going to owe them a hefty buyout (e.g. 8.5% annual return on their personal contributions to the plan).

The state OWES exactly what it has promised to pay. Go ahead and change the rules in negotiating the next contract. PLEASE change the rules. But you surely are not willing to set aside centuries of contract law, are you?

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