/Detroit

[mr_genius]

http://www.nytimes.com/2013/07/29/us/detro...s&_r=1&

 

Looks like one of the plans is to cut all the health coverage and put the public employees into Obamacare

 

As Detroit enters the federal bankruptcy process, the city is proposing a controversial plan for paring some of the $5.7 billion it owes in retiree health costs: pushing many of those too young to qualify for Medicare out of city-run coverage and into the new insurance markets that will soon be operating under the Obama health care law....

 

 

But if large numbers of localities follow that course, it could amount to a significant cost shift to the federal government. Authors of the health care law expected at least some shifting of retirees into the new insurance exchanges, said Timothy S. Jost, a law professor at Washington and Lee University who closely follows the law. “But if a lot of them do, especially big state and local programs,” he said, “that’s going to be a huge cost for the United States government, and it’s mandatory spending.”

 

i guess that would be a federal bailout

Edited July 29, 2013 by mr_genius

[StrangeSox]

How much of a burden on pension funds would a universal healthcare system have alleviated?

[Balta1701]

How much of a burden on pension funds would a universal healthcare system have alleviated?

They're all counted as "Benefits" but shouldn't "Retiree health care" be a fully separate line-item from retiree retirement costs (a-la Medicare and Social Security?) I can't imagine anyone would think "Investing health care costs in the stock market" is a good idea?

 

By the way, this post also gives me a chance to note that the pension-holders in Detroit are doubly-screwed here because they aren't eligible for Social Security benefits, their pension through the city was their only retirement.

[NorthSideSox72]

Then they sell off land in huge chunks and pull the city limits in. Shrink the area that needs services. I'm guessing that will be difficult since other suburbs won't be looking to expand and its the opposite of every other city's position. But there are no easy options.

They'd have to condemn it to take possession, which could take a long time and some court battles. But selling it is the issue... who do they sell it to? The county and other suburbs won't want it, so, I am not sure there is a real option there. Is there a state law allowing abandonment of property? By a municipality? The county and state would throw a fit.

 

 

[NorthSideSox72]

By the way, this post also gives me a chance to note that the pension-holders in Detroit are doubly-screwed here because they aren't eligible for Social Security benefits, their pension through the city was their only retirement.

That is a good point. Taking away the pensions in any way (not just decreasing adjustments, but actually taking away already-earned funds) does leave those folks worse-off than others who have social security to fall back on. Adds yet another complication.

 

[RockRaines]

I dont get pensions. Why not just take some of their salary and let them put it into a 401k like the rest of us? Stop the idea of pensions right now moving forward.

[NorthSideSox72]

I dont get pensions. Why not just take some of their salary and let them put it into a 401k like the rest of us? Stop the idea of pensions right now moving forward.

Most sane people would agree, in principle.

 

However, the problem with that is, what do you do in the transition? You would then have obligations without an in-flow for those who already have pensions. That is a disaster. The only way to fix it really, is to either clean-slate the whole thing (like Detroit is doing), or do a mass-transition of the obligations (which most states and municipalities don't have the cash to fund).

 

[RockRaines]

Most sane people would agree, in principle.

 

However, the problem with that is, what do you do in the transition? You would then have obligations without an in-flow for those who already have pensions. That is a disaster. The only way to fix it really, is to either clean-slate the whole thing (like Detroit is doing), or do a mass-transition of the obligations (which most states and municipalities don't have the cash to fund).

The past contracts non-withstanding I dont understand why ANYONE hired lets say today would be eligible for a pension. These cities from Now ON should eliminate any pension. Frankly I dont understand the availability of a pension.

 

In chicago the pensions are ridiculous. Bus drivers and such making 6 figure pensions for the rest of their lives is insane.

[Balta1701]

I dont get pensions. Why not just take some of their salary and let them put it into a 401k like the rest of us? Stop the idea of pensions right now moving forward.

The management costs of having each person holding a 401k plan are vastly higher than having a centralized pension fund. The biggest winner in this case is the financial industry; they get a much larger fraction of the money people invest for their retirement.

[StrangeSox]

Some private companies still offer their employees pensions.

[EvilMonkey]

The management costs of having each person holding a 401k plan are vastly higher than having a centralized pension fund. The biggest winner in this case is the financial industry; they get a much larger fraction of the money people invest for their retirement.

Explain to me how a teacher contributing $250 a month to their pension and then collecting $40k, $50k or more a year in benefits is cheaper than having a 401k set up? If they worked 30 years they would have put in less than $100k, which they would use up in 2 or 3 years. The rest comes from the pyramid scheme known as defined benefit public pensions. 401k management fees are almost nothing unless you constantly change your funds allocations.

[EvilMonkey]

The past contracts non-withstanding I dont understand why ANYONE hired lets say today would be eligible for a pension. These cities from Now ON should eliminate any pension. Frankly I dont understand the availability of a pension.

 

In chicago the pensions are ridiculous. Bus drivers and such making 6 figure pensions for the rest of their lives is insane.

On a small scale, smaller municipalities could prorate out the present value of their pensions and deposit that amount into 401k's for everyone and just stop pensions from that point forward, but even if the legality of it worked, it would be a HUGE upfront financial hit. Long term it would pay off as they would be free from the ever rising costs of the pensions.

[RockRaines]

The management costs of having each person holding a 401k plan are vastly higher than having a centralized pension fund. The biggest winner in this case is the financial industry; they get a much larger fraction of the money people invest for their retirement.

Costs? What costs?

[NorthSideSox72]

Costs? What costs?

Balta is just outright wrong on his post.

 

What I do think you are missing though, is, as I said... if you start all new hires on a 401k-like plan, how do you pay the people still in the pension system? There is no in-flow to the system, so it all falls apart.

 

[StrangeSox]

Explain to me how a teacher contributing $250 a month to their pension and then collecting $40k, $50k or more a year in benefits is cheaper than having a 401k set up? If they worked 30 years they would have put in less than $100k, which they would use up in 2 or 3 years. The rest comes from the pyramid scheme known as defined benefit public pensions. 401k management fees are almost nothing unless you constantly change your funds allocations.

There were a handful of links and an episode of Frontline in the financial thread (or at least I thought, can't find Balta's post now) a few months back that highlighted just how big of a bite management fees take out of the average 401(k). It's something like 40-50% of your total value over the lifetime between fund management fees and account management fees. Don't want to derail the thread, but here's the Frontline episode if you're curious:

 

http://www.pbs.org/wgbh/pages/frontline/bu...-fees-cost-you/

[Balta1701]

There were a handful of links and an episode of Frontline in the financial thread (or at least I thought, can't find Balta's post now) a few months back that highlighted just how big of a bite management fees take out of the average 401(k). It's something like 40-50% of your total value over the lifetime between fund management fees and account management fees. Don't want to derail the thread, but here's the Frontline episode if you're curious:

 

http://www.pbs.org/wgbh/pages/frontline/bu...-fees-cost-you/

There's a reason retirement security has been thoroughly destroyed for much of this country at the same time as the pension system has been dismantled. It's a setup to extract fees.

 

What no one pays attention to is the fact that as the pension system has been dismantled and replaced with totally inadequate 401k plans...we're not going to allow the baby boom generation to retire out on the streets. The government and the taxpayer will wind up making up the gap, just as will happen to the people who lose their pensions in Detroit.

[Jenksismyhero]

Balta is just outright wrong on his post.

 

What I do think you are missing though, is, as I said... if you start all new hires on a 401k-like plan, how do you pay the people still in the pension system? There is no in-flow to the system, so it all falls apart.

 

When these plans aren't really funded properly and a government entity on some level has to "bail" them out, does it really matter? At least if we canceled pensions now we'll have a definite end point where these insane obligations (tens of billions for states) will go away.

[EvilMonkey]

There's a reason retirement security has been thoroughly destroyed for much of this country at the same time as the pension system has been dismantled. It's a setup to extract fees.

 

What no one pays attention to is the fact that as the pension system has been dismantled and replaced with totally inadequate 401k plans...we're not going to allow the baby boom generation to retire out on the streets. The government and the taxpayer will wind up making up the gap, just as will happen to the people who lose their pensions in Detroit.

Nope. We'll have them die waiting for rationed medical care on Obamacare.

[Balta1701]

Nope. We'll have them die waiting for rationed medical care on Obamacare.

HAHAHAHAH AYOURE FUNNY HAHAHAHAHHAHAHAHA SO CREATIVE I LOVE IT HAHAHAHAHAHA IMPRESSIVE ARGUMENT HAHAHAHAHA GREAT HAHAHAHAHAHA AWESOME YOU RULE

[StrangeSox]

good job, now you've gone and broken Balta

[southsider2k5]

HAHAHAHAH AYOURE FUNNY HAHAHAHAHHAHAHAHA SO CREATIVE I LOVE IT HAHAHAHAHAHA IMPRESSIVE ARGUMENT HAHAHAHAHA GREAT HAHAHAHAHAHA AWESOME YOU RULE

 

Obviously you have never been through the vaunted VA if you think that is funny.

[NorthSideSox72]

There's a reason retirement security has been thoroughly destroyed for much of this country at the same time as the pension system has been dismantled. It's a setup to extract fees.

 

What no one pays attention to is the fact that as the pension system has been dismantled and replaced with totally inadequate 401k plans...we're not going to allow the baby boom generation to retire out on the streets. The government and the taxpayer will wind up making up the gap, just as will happen to the people who lose their pensions in Detroit.

This line of reasoning is ridiculous.

 

First, most pension plans are already administered at some level by private financial companies, and done so with unusually high levels of attention to adhere to arcane rules. Then add to that the government layers of management. A pension plan has far greater overhead than a 401k to the end user.

 

That, to me, isn't even the argument. The problem is, how do you get people over to that, when you have an already-underfunded set of obligations in a pension plan? Heck, even if you are responsibly funded, you will suddenly not be when making the transition, so you have to pay an enormous amount of money to make it work. Therein lies the biggest problem.

 

[Jenksismyhero]

There were a handful of links and an episode of Frontline in the financial thread (or at least I thought, can't find Balta's post now) a few months back that highlighted just how big of a bite management fees take out of the average 401(k). It's something like 40-50% of your total value over the lifetime between fund management fees and account management fees. Don't want to derail the thread, but here's the Frontline episode if you're curious:

 

http://www.pbs.org/wgbh/pages/frontline/bu...-fees-cost-you/

 

If you invest properly, a lot of those fees don't apply. Trading fees for example. You should never get hit with a trading fee if you invest in diversified index funds. And the personally managed fund (and fees associated with it) are a thing of the past.

[Balta1701]

That, to me, isn't even the argument. The problem is, how do you get people over to that, when you have an already-underfunded set of obligations in a pension plan? Heck, even if you are responsibly funded, you will suddenly not be when making the transition, so you have to pay an enormous amount of money to make it work. Therein lies the biggest problem.

The problem with underfunded 401k's leaving people with no retirement security is going to make the problem of underfunded pension plans look like a walk in the park.

[StrangeSox]

If you invest properly, a lot of those fees don't apply. Trading fees for example. You should never get hit with a trading fee if you invest in diversified index funds. And the personally managed fund (and fees associated with it) are a thing of the past.

Hate to derail, but there are basic account management fees that you get charged regardless of what funds you're in. If you're with someone like Vanguard, they're minimal. Fidelity, ok. A smaller firm might charge as much as 3% of your account balance annually.

 

http://money.usnews.com/money/blogs/planni...probably-paying

 

edit: the frontline episode and linked website a few posts back details this pretty thoroughly.

Edited July 29, 2013 by StrangeSox