Just take a cut from Christie's food/liquor budget.

Rarely is the question asked, "is our children learning?"

They (specifically construction unions' pension plans) have and have gotten into the same trouble.

The average CPS retiree is currently 61 and change with a life expectancy of 21 years, and will receive an average of $71,717 + cost of living increases for life. Lets round up to 62 and assume COLA adjustments equal inflation. This means the average teacher retiring this year has a pension with a current cash value of $1.85 million. This puts your average CPS retiree in the top 5% of HOUSEHOLD wealth. And they face zero investment risk. If you think that makes sense, I guess we'll just have to agree to disagree.

Are you just taking the current cash value of a pension and comparing that to total population household wealth distributions (ignoring pensions)? Because thats not going to make sense, but for different reasons than you prob think.

Yeah Max, you're going to convince the world that because old people usually have more money my point is invalid. These people have making way above median salaries their whole working lives before you even consider the pensions. Not to mention the value of their health benefits.

Really?

That obv has nothing to do with what you said. I was asking whether you took the present value of a pension and just compared it to basic liquid assets of the rest of the population (ignoring real estate, pensions etc) or if did you do something else.

NPV of pension vs. government statistics, but who cares? Are you really going to argue that a $1.8 million pension is appropriate/defensible?

Yeah... I'd say it's ballpark well within the reach of most median income workers over a long career. Comparing a pensions value to actual wealth of largely non pension holders (or just ignoring pensions all together) just shows that, left up to their own devices people do a terrible job of saving. Or put another way, pay 2 workers the exact same amount over a career 1 gets forced into a pension, the other takes home more every month. A 1.8 million dollar difference at the end of 30 years is completely believable/prob likely.

JFC Mr. Pension eluded payroll tax while contributing little to nothing towards retirement while earning above median wages while getting three months off while being impossible to fire. Also, to accumulate $1.8 million a $100k a year employee has to pus aside like $40k plus for 20 years. How is that supposed to happen, particularly in a place like Illinois where you pay not only state income tax but ridiculous sales and property tax as well? Not to mention you have to discount the value of the 401(k)/IRA/whatever since Mr. Pension gets his payments no matter what and is totally shielded from market fluctuations.

Did you just add up the pensions for 21 years without discounting? That's not a good way to value something paid over many years.

On the other hand, they other value (and it's very meaningful) that you didn't include at all is the value of the guarantee that no matter how long the retiree lives he or she is entitled to a pension. There's a big extra value to something that is expected to be paid for 21 years, but may be paid longer, when it comes to retirement savings.

I assumed the COLA = inflation. The other massive benefit I'm not valuing is health care for life starting at 62.

Sure the health care is another big benefit.

A significant problem isn't just that the pension is worth a big number (say $1M+) but that it's very hard to get someone to understand how valuable it is. Even for a much more modest pension (say $25,000 per year) to tell someone that's worth a half a million dollars doesn't get much traction. "Half a million" sounds like something only rich people get, but $25,000 per year sounds like you are a poor person.

While someone with $1.8 million in a 401(k) is "a millionaire." See the Obama "tax 529s" bull****.

Technical point - you should still discount at some reasonable rate. The payments in year 21 are worth less than the payments in year 1, even before accounting for inflation. Since inflation and longer term interest rates are both around 2%, a closer value would be 21 year x $71,700 per year (basically inflation accumulation offsets the interest discounting) so around $1.5M.

lol....just became a general anti teacher/Ilinois rant i guess. I was going 30 year working career....and 401(k)s contributions and matching aren't subject to payroll tax, pension contributions are identical as far as the employer is concerned, so mr pension is not contributing little to nothing etc etc. Sorry prob not worth going on more at this point.

401k contributions are capped at roughly 18k. 30 years, 540k, how are we getting to $1.5 million plus?

I agree its going to be tough with 0 percent returns. And only your contributions are capped at 18k, with matching you can get to 36k.

Tax sheltered interest helps a lot. If you put $18,000 a year in an account for 30 years and earned 4% investment return per year you'd have $1M.

This is true, but there are a couple of important points:

1. Sometimes public sector workers "forget" about the employer part. I have seen many times in union negotiations in Ontario public sector workers express the view that the pension is something they paid for with their own contributions. And they literally meant their payroll deduction, not the sum.

2. An important and often misunderstood nuance is that the value of the pension often substantially exceeds the combined employee and employer contributions for public sector plans. This is another thing that makes it hard to have meaningful discussions about the value/cost of their pensions because you see a lot of cases where the worker puts in, say, 3% of pay and the employer puts in 5% but the benefit would actually cost something like 25% of pay if you didn't take (and transfer to future generations) risks. But naturally the workers see the plan as "worth" 2% or 8% of pay.

CPS pension funds assumed 8%. It was worse than pulling teeth to get the unions to agree to lower that number to 7.75%.

This is basically one of the major mechanics to inflate the value of the pensions well beyond the contributions of both employees and employers and create huge unfunded pension liabilities.

Sure....but we have people itt saying pension holders are "contributing little to nothing towards retirement"....don't think we're having a discussion where nuance yet matters. Basic facts would be a great leap forward.

I've been on quite a few negotiating teams and I can't ever recall having a say in how the return is calculated.

I guess maybe it's wrapped into the formulas?

Agree, proper investing of the employee deductions is easy. Getting the state to make its required contribution is the issue. A rule based federal mandate requiring reasonable contributions or lose federal funding would work. Exposing creditors to pension losses would probably work the credit markets would dry up forcing some responsibility. Hoping that someone else will pay the bill everybody new was coming should no longer be a strategy.

Could you expand on this? (Aren't you an actuary or something?)

Like what would be the difference in the NPV in this specific case (using the numbers RM used, if they are in fact correct)?